In re National Credit Management Group, L.L.C.

• Decision Date: 25 March 1998
• Docket Number: No. CIV. A. 98-936(AJL).,CIV. A. 98-936(AJL).
• Citation: 21 F.Supp.2d 424
• Parties: In re NATIONAL CREDIT MANAGEMENT GROUP, L.L.C., Glen Buzzetti, Individually and as an officer of National Credit Management Group, L.L.C.; and Joseph Ferguson, Individually and as an officer of National Credit Management Group, L.L.C.
• Court: U.S. District Court — District of New Jersey

21 F.Supp.2d 424

In re NATIONAL CREDIT MANAGEMENT GROUP, L.L.C., Glen Buzzetti, Individually and as an officer of National Credit Management Group, L.L.C.; and Joseph Ferguson, Individually and as an officer of National Credit Management Group, L.L.C.

No. CIV. A. 98-936(AJL).

United States District Court, D. New Jersey.

March 25, 1998.

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Debra A. Valentine, General Counsel, Catherine R. Fuller, John C. Hallerud, Federal Trade Commission, Chicago, IL, Faith S. Hochberg, United States Attorney, Kimberly Guadagno, AUSA, United States Attorneys' Office, Newark, NJ, for plaintiff F.T.C.

Peter Verniero, Attorney General of New Jersey, Gail M. Cookson, Deputy Attorney General, Division of Law, Newark, NJ, for plaintiff State of N.J.

Sheldon S. Lustigman, Andrew B. Lustigman, The Lustigman Firm, P.C., Hillsdale, NJ, Counsel for Defendant National Credit Management Group, L.L.C.

William Harla, DeCotiis, Fitzpatrick & Gluck, Teaneck, NJ, Counsel for Defendant Joseph Ferguson.

Albert L. Buzzetti, Sekas & Buzzetti, L.L.C., Englewood Cliffs, NJ, Counsel for Defendant Glen Buzzetti.

OPINION

LECHNER, District Judge.

This is an action brought by plaintiffs the Federal Trade Commission (the "FTC") and the New Jersey Attorney General (the "State of New Jersey") against defendants National Credit Management Group ("NCMG"), d/b/a "1-800-YES-CREDIT," Glen Buzzetti ("G. Buzzetti") and Joseph Ferguson ("Ferguson")¹ (collectively, the "Defendants"). The instant action alleges violations of Section 5(a) ("Section 5") of the Federal Trade Commission Act (the "FTCA"), 15 U.S.C. § 45(a), the Credit Repair Organization Act (the "CROA"), 15 U.S.C. § 1679a et seq., the Telemarketing and Consumer Fraud and Abuse Prevention Action (the "TCFA"), 15 U.S.C. § 6101 et seq., the Telemarketing Sales Rule (the "TSR"), 16 C.F.R. Part 310 and the New Jersey Consumer Fraud Act (the "CFA"), N.J.S.A. 56:8-1 et seq.

On 3 March 1998, the Plaintiffs filed a complaint.² Specifically, the Plaintiffs seek, among other things, a permanent injunction enjoining the Defendants from further violations of the aforementioned statutes, appointment of a receiver and an asset freeze which extends to the assets of the Individual Defendants. See Second Consolidated Complaint, ¶¶ 140-142, p. 39, ¶¶ 3,8; Moving Brief at 37-38. Jurisdiction is alleged pursuant to 28 U.S.C. §§ 1331, 1337(a), 1345 and 1367, and 15 U.S.C. §§ 53(b),³ 57b, 6102(c), 6103(a), 6105(b), 1679(h)(b) and 1679h(c)(1). See Second Consolidated Complaint, ¶ 4.

Currently before the court is an order to show cause (the "Order to Show Cause") seeking a preliminary injunction⁴ filed by the Plaintiffs. For the reasons set forth below, the request for a preliminary injunction is granted.⁵

I. BACKGROUND

A. Procedural History

On 3 March 1998, the FTC⁶ and the State of New Jersey⁷ each initiated separate suits and filed separate applications for the issuance of TROs in the instant action. During the 3 March 1998 Hearing, the two cases were consolidated and the Plaintiffs were directed to file a consolidated complaint captioned In Re National Credit Management Group L.L.C., 98-936.⁸ See Transcript from 3 March 1998 Hearing at p. 4, lines 8-11; p. 30, lines 6-10. The Defendants were initially served with the applications made by both the FTC and the State of New Jersey for TROs on 2 March 1998. See NCMG Chronology at p. 4. At the 3 March 1998 Hearing, a return date was set for 20 March 1998 to allow the Plaintiffs to file a joint brief and the Defendants an opportunity to file opposition. See Transcript 3 March 1998 Hearing at p. 31, lines 15-21. The Plaintiffs also indicated a reply would be filed. See id. at p. 18, lines 17-18.

The Plaintiffs agreed to treat the instant proceeding and the hearing to be held on 20 March 1998 (the "20 March 1998 Hearing") as one for a preliminary injunction. See Transcript from 3 March 1998 Hearing at p. 35, lines 18, 21-22. The parties declined, however, to treat the 20 March 1998 Hearing as a hearing for a permanent injunction. See id. at p. 35, line 6.

At the 20 March 1998 Hearing, the parties were heard on the issue of whether a preliminary injunction should be issued.⁹

B. Facts

1. The Defendants

NCMG, which also conducts business under the name of "1-800-YES-CREDIT," advertises credit monitoring and credit card services. See Smith Cert. at ¶ 2; Second Consolidated Complaint, ¶ 8. NCMG was formed as a New Jersey limited liability company by G. Buzzetti and Ferguson in 1995. See Smith Cert. at ¶ 2; see also Certificate of Formation of NCMG attached as Exh. A to Smith Cert. The publicly disseminated mailing address for NCMG is 177 Main Street Suite 230, Fort Lee, New Jersey,¹⁰ but NCMG is physically located at 115 River Road, Edgewater, New Jersey. See Smith Cert. at ¶ 2.

G. Buzzetti is the Chief Executive Officer, President and eighty-percent equity owner of NCMG.¹¹ See Smith Cert. at ¶ 8; G. Buzzetti Deposition (the "G. Buzzetti Dep."), dated 17 October 1997, attached as Exh. F. to Smith Cert. at p. 12, lines 5-7. Ferguson is the Chief Financial Officer, Vice President and twenty-percent equity owner of NCMG. See G. Buzzetti Dep. attached as Exh. F. to Smith Cert. at p. 13, lines 6-10; Ferguson Deposition (the "Ferguson Dep."), dated 10 October 1997, attached as Exh. E to Smith Cert. at p. 10, lines 3-10. G. Buzzetti and Ferguson have been and are the only two equity members of NCMG. See Smith Cert. at ¶ 8.

Beginning in March 1995, the Defendants offered credit monitoring services to consumers throughout the United States. See Second Consolidated Complaint, ¶ 12. Almost from the start, NCMG used the "1-800-YES-CREDIT" toll-free line as the central marketing focus of its business. See Ferguson Dep. attached as Ex. E to Smith Cert. at p. 45, line 21 to p. 46, line 19. The Defendants placed advertisements on cable television and radio for the toll-free telephone number, "1-800-YES-CREDIT." See Second Consolidated Complaint, ¶ 13. These advertisements indicate that if an individual has credit problems he or she should call "1-800-YES-CREDIT" to receive a "confidential analysis" regarding his or her credit history. See id. Many of these advertisements also promise NCMG provides consumers with a complimentary "approved" application for a major credit card without a security deposit. See id.

NCMG receives a daily estimate of 5,000 weekday and 1,500 weekend "inbound" telephone calls from consumers responding to its television and radio advertisements. See Smith Cert. at ¶ 13; Ferguson Dep. attached as Exh. E to Smith Decl. at p. 50, lines 2-3 (estimating 6,000 to 7,000 incoming calls daily). NCMG does not engage in "cold calling." See Ferguson Dep. attached Exh. E to Smith Cert. at p. 38, lines 10-12. On average, five to nine percent of consumers calling the toll-free number purchase the initial credit analysis (the "Initial Analysis") offered by NCMG for $ 95.00. See G. Buzzetti Dep. attached as Exh. F to Smith Cert. at p. 58, lines 1-7. NCMG has approximately 100,000 to 150,000 customers who have either purchased the Initial Analysis or the two-year program (the "Program") offered by NCMG to consumers who either desire to establish or re-establish their credit. See Ferguson Dep. attached as Exh. E. to Smith Cert. at p. 64, lines 11-18.

In its first two years of operations, NCMG grew from having only a few employees to a company with more than 270 employees. See Smith Cert. at ¶ 39; Ferguson Dep. attached as Exh. E to Smith Cert. at p. 19, lines 19-22 and p. 25 lines 13-16. The net revenues of NCMG for the six months ended 30 June 1997 was $ 6,318,975. See Financial Statements attached as Exh. E to Smith Cert. at 3.

Since its inception, the Individual Defendants have participated in and supervised the day-to-day operations of NCMG. See Smith Cert. at ¶ 8; Second Consolidated Complaint, ¶¶ 9-10. Both G. Buzzetti and Ferguson help produce the materials used by NCMG and provided to consumers. See Ferguson Dep. attached as Exh. E to Smith Cert. at p. 44, lines 7-8; G. Buzzetti Dep. attached as Exh. F to Smith Cert. at p. 21, lines 6-18. Ferguson also oversees the computer and telephone systems, as well as the distribution and processing departments. See Ferguson Dep. attached as Exh. E to Smith Cert. at p. 19, line 24 to p. 20, line 18. Additionally, G. Buzzetti supervises the advertising campaigns and the sales staffs of the customer relations and credit analyst departments. See G. Buzzetti Dep. attached as Exh. F to Smith Cert. at p. 27, line 6 to p. 28, line 7; p. 34, line 17 to p. 35, line 4. In fact, G. Buzzetti has designed and produced most of the advertisements.¹² See id. p. 34, line 17 to p. 35, line 24.

2. The Investigations

a. The Illinois Investigation

On 28 January 1996, NCMG was identified as a potential target of an FTC investigation known as "Operation Payback." See Plaintiffs' Chronology at 2. Operation Payback involved a nationwide sweep of credit repair companies. See id. This investigation led to the filing of a complaint in the United States District Court for the Northern District of Illinois against NCMG by the Illinois Attorney General (the "Illinois Action"). See id. at 3.

The Illinois Attorney General asserted claims arising under the TSR, the Illinois Credit Services Act (the "ICSA"), which is similar to the CROA, and the Illinois Consumer Fraud Act (the "ICFA"). See A. Buzzetti Cert. at ¶ 2. The suit sought to enjoin the collection of fees by NCMG prior to the completion of the two-year program offered by NCMG. See id.

NCMG filed a counterclaim in the Illinois Action alleging that the ICSA, ICFA and the advance-fee restrictions regarding credit improvement services of the TSR violated the First Amendment as applied and on their face. See A. Buzzetti Cert. at ¶ 3; see also Counterclaim attached as Exh. 1 to A. Buzzetti Cert.

The judge presiding over...