United States v. Commercial Recovery Sys., Inc.

• Decision Date: 07 April 2016
• Docket Number: CASE NO. 4:15-CV-36
• Citation: 179 F.Supp.3d 728
• Parties: United States of America v. Commercial Recovery Systems, Inc., Timothy L. Ford, individually and as an officer of Commercial Recovery Systems, Inc., and David J. Devany, individually and as a former officer of Commercial Recovery Systems, Inc.
• Court: U.S. District Court — Eastern District of Texas

179 F.Supp.3d 728

United States of America

v.Commercial Recovery Systems, Inc., Timothy L. Ford, individually and as an officer of Commercial Recovery Systems, Inc., and David J. Devany, individually and as a former officer of Commercial Recovery Systems, Inc.

CASE NO. 4:15-CV-36

United States District Court, E.D. Texas, Sherman Division.

Signed April 7, 2016

Heide L. Herrmann, United States Dept. of Justice, Consumer Protection

Branch, Liberty Square Building, RM, for United States of America.

Stephen Gray McFayden, Franklin McFayden, Frisco, TX, Emil Lippe, Jr., Lippe & Associates, Dallas, TX, for Commercial Recovery Systems, Inc., Timothy L. Ford.

MEMORANDUM OPINION AND ORDER

AMOS L. MAZZANT, UNITED STATES DISTRICT JUDGE

Pending before the Court is Plaintiff's Motion for Summary Judgment (Dkt. #30). The Court, having considered the relevant pleadings, finds that Plaintiff's motion should be granted as to Defendants Commercial Recovery Systems, Inc. (“CRS”) and Timothy Ford (“Ford”).¹

BACKGROUND

On March 13, 2013, in response to numerous consumer complaints about CRS's debt collection practices, the Federal Trade Commission (“FTC”) issued a Civil Investigative Demand (“CID”) to CRS to review its debt collection practices. CRS's responses to the CID and FTC's interviews with former employees corroborated the numerous consumers' complaints. Based upon the evidence, Plaintiff the United States of America filed this suit, seeking both injunctive relief and civil penalties.

Defendant CRS is a Texas corporation that has been in business since 1994. Until 2013, its main office was in Dallas, with a secondary office in Plano, Texas. CRS is a third-party debt collector that primarily collects consumer debt that was “primarily for personal, family, or household purposes,” including auto loans and credit card debts, on behalf of the original creditors, and conducts business in numerous states. In November 2013, CRS sought bankruptcy protection under Chapter 11. Defendant Tim Ford, CRS's President, Director, and majority shareholder, testified in CRS's bankruptcy proceedings that the company's insolvency resulted, in large part, from a number of Fair Debt Collection Practices Act (“FDCPA”) lawsuits brought by private litigants.

Defendant Ford has been CRS's Director and President since its incorporation. Until recently, he was also its sole shareholder. Ford drew a salary of up to $200,000 per month from the company until its bankruptcy. Ford spoke daily with the company's Vice President, David Devany, and received regular updates about the company, including updates about litigation, FDCPA issues, and consumer complaints. Ford also actively helped manage the company by authorizing the termination and discipline of employees and assisting with planning and providing incentive contests to award to top collectors. Ford approved settlements of lawsuits filed against the company, including lawsuits alleging FDCPA violations. Ford signed a February 2013 Stipulation and Final Agency Order, entered into between CRS and the Colorado Attorney General, to resolve multiple violations of the Colorado Fair Debt Collection Practices Act.

As a third-party collector, CRS did not own the debts it collected. The company was not a law firm and did not sue debtors or garnish wages. CRS was a mid-size debt collection company. Shortly before declaring bankruptcy, the company employed approximately 300 employees, but downsized in 2013 to employing approximately 80 collectors. CRS collectors earned a monthly base salary of between $1,500 and $3,000, depending upon the collector's skill level and production, and earned commissions for amounts collected above quota. In addition to their base salary and commissions, top collectors received a variety of rewards such as access to CRS's luxury suite at AT&T Stadium to watch Dallas Cowboys' games or a lunch or dinner at an upscale local restaurant.

According to former employees, FDCPA compliance training at CRS was virtually nonexistent, and some collection groups were more FDCPA compliant than others. In written CID interrogatory responses, CRS noted that it administered an FDCPA compliance test to all new employees. However, some former employees do not remember any FDCPA training for new hires. According to them, newly hired employees were on the floor collecting the day they were hired.

CRS stated in its 2013 CID interrogatory responses that it had a full-time employee who monitored its collection calls for FDCPA compliance, noted all violations, and wrote up offending employees. But former employees contradict CRS's claims, describing that no formal disciplinary system for FDCPA violations existed at the company and that employees were rarely terminated for FDCPA violations. These former-employee allegations are supported by the number of violations identified in call recordings. Some former employees stated the only employees fired for FDCPA violations were those whose collection tactics resulted in complaints from the creditor-client or a lawsuit.

CRS's collection practices generated a large number of complaints filed with the Better Business Bureau. Numerous complaints reported that CRS collectors were: (1) falsely representing the character or legal status of a debt; (2) falsely representing or implying that Defendants' collectors were attorneys or that a communication was on behalf of an attorney; (3) falsely representing or implying that nonpayment of a debt would result in the filing of a lawsuit or other legal action against the consumer; and (4) falsely representing or implying that nonpayment of a debt would result in the seizure, garnishment, or attachment of a person's property or wages. Consumers continued to file numerous complaints even after CRS received the FTC's CID in March 2013.

Part of CRS's response to the FTC's CID was the production of a hard drive containing audio recordings of thousands of calls made by CRS collectors between November 1, 2012, and March 21, 2013. Given the volume of recordings, FTC listened to a random sampling of 300 calls to determine whether the database contained any FDCPA violations. The best evidence of CRS's repeated abusive and deceptive collection tactics, discussed in detail below, is contained in those recordings.

The most common misrepresentation employed by CRS collectors is impersonating attorneys, attorneys' staff, or judicial employees. Of the 300 random calls analyzed, 77 included such impersonations. In these call recordings, collectors described themselves as attorneys or calling on behalf of attorneys or a law firm, such as by claiming that they were calling from “the Law Offices of CRS and Associates.” Collectors implied that attorneys were involved in the collection efforts, by stating they were calling from “the legal department,” or were calling regarding “a legal matter pending,” that they “represented” CRS, or that they “represented the legal interests” of a creditor. Collectors told consumers that “there is a case against you” and offered to resolve it “out of court.”

Collectors also claimed to be judicial employees, mediators, or other court personnel. One collector stated that he was a mediator working for a state judge, going so far as to put the consumer on hold while he pretended to speak with the judge regarding the consumer's case. Another stated that she was “with the county,” calling regarding an “affidavit of complaint.” In another call, a collector referred to himself as a “senior mediator for CRS and associates,” which he proclaimed to be a “firm hired by Bank of America” to sue the consumer.

Former employees confirmed that such tactics were commonplace and were intended to pressure consumers into paying their accounts. One former employee stated that some collection groups ran a police scanner as background noise to make the collectors' threats, that a constable was on his way to serve the consumer with a lawsuit, sound real.

The audio recordings also demonstrate that CRS collectors frequently threatened consumers with litigation despite having no authority to sue on behalf of its creditor-clients. Collectors led consumers to believe that an action was already filed against the consumer and would continue unless the consumer paid the debt. These threats were patently false because, as CRS admitted, the company did not file lawsuits against debtors. Collectors in 68 of the 300 randomly selected call recordings expressly or impliedly threatened litigation. Collectors at times expressly threatened to bring litigation. Collectors frequently used terms that implied threatened legal action. Collectors claimed that an “affidavit of complaint” or “case” was filed against the consumer, and offered to settle it “out of court.” Collectors also stated they would “proceed with action” unless the consumer returned the collector's call by a certain date or time. Collectors suggested that consumers' failure to return the voicemail would constitute “waiving [their] rights.” Sometimes collectors gave a “case number” or referred to a “complaint” that has been filed in their office and stated that paying the debt now would prevent the case from going further. Former employee-collectors acknowledged that these types of threats about lawsuits were used regularly at CRS to induce payment.

In the audio recordings produced by CRS, CRS collectors falsely threatened to garnish wages. Twenty-one of the 300 randomly selected call recordings included threats of garnishment, seizure or attachment. These threats are patently false because, as CRS admitted, the company does not attempt to garnish consumer wages, place liens on consumer property, or otherwise take action against debtors. Audio recordings produced by CRS featured collectors stating they were calling regarding a “writ of execution” or “execution of service” that had been or was being filed against the consumer. Collectors reminded debtors that wage garnishment was possible, or directly...