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From Antitrust Law Daily, October 23, 2013

Injunctive relief, disgorgement order upheld in FTC credit repair, loan modification action

By Jeffrey May, J.D.

The FTC was entitled to an order banning an individual from the mortgage, credit repair, loan modification, and telemarketing businesses and requiring that individual to pay $2,663,515 in disgorgement and restitution, the U.S. Court of Appeals in Atlanta ruled today in a not-for-publication opinion (FTC v Lalonde, October 23, 2013, Per Curiam). The appellate court rejected numerous challenges to a magistrate judge’s grant of summary judgment in favor of the FTC and to the accompanying relief.

The FTC filed a complaint in 2009 against 1st Guaranty Mortgage Corp. and Stephen Lalonde, the company’s president and manager, as well as related companies and individuals, alleging violations of the FTC Act, the Credit Repair Organizations Act (CROA), and the Commission’s Telemarketing Sales Rule (TSR). According to the complaint, Lalonde and others violated the CROA and the FTC Act by making false or misleading representations to induce consumers to purchase credit repair services (Counts 1 and 4). Count 2 of the complaint alleged receipt of upfront fees for credit repair services in violation of CROA. Count 3 alleged the defendants violated the TSR based by misrepresenting that they could obtain loans or other extensions of credit with a high likelihood of success and for collecting upfront fees. Count 5 alleged violations of the FTC Act based on false representations that the defendants would obtain refinanced home mortgages for consumers and use the proceeds of those loans to pay off consumers’ existing mortgages. Lastly, Lalonde and others were charged with falsely representing that they would obtain mortgage loan modifications for consumers in violation of the FTC Act (Count 6).

The parties consented to disposition of the case by a magistrate judge. After discovery, the FTC moved for summary judgment.

The magistrate determined that Lalonde, acting through the corporate defendants, had violated the CROA, the TSR, and the FTC Act as alleged in all six counts of the FTC’s complaint. He was individually liable for the violations alleged in Counts 1 through 4 and 6 because he owned or controlled the corporate defendants, he was present at the business premises of his companies, and he monitored the activities of his sales staff and managers. Lalonde was individually liable for the violation alleged in Count 5, in light of his guilty plea in a related criminal case. The court entered a permanent injunction and ordered disgorgement and restitution.

In the separate criminal case, which was based on the allegations underlying Count 5 of the FTC’s complaint, Lalonde was sentenced to 60 months in prison and ordered to pay over $1.5 million.

Summary judgment. The appellate court concluded that the magistrate judge correctly granted the FTC’s motion for summary judgment. Lalonde argued that he should not have been held individually liable for the activities of the corporate defendants, which were found to have committed the violations at issue in the complaint. With respect to the CROA and FTC Act violations, Lalonde had authority to control the actions of 1st Guaranty and the other corporate defendants. Further, Lalonde had actual knowledge of the deceptive trade practices, or at the very least, an awareness of a high probability of fraud along with an intentional avoidance of the truth, according to the court.

Similarly, Lalonde was individually liable for the corporate defendants’ violations of the TSR. The court rejected the contention that the corporate defendants were not engaging in telemarketing as defined by the TSR. Further, Lalonde had the ability to control the telemarketing program and knew or should have known of the violations by the companies. Lastly, the appellate court upheld summary judgment on Count 5, despite Lalonde’s argument that it was duplicative of Florida administrative proceedings concerning the same activities.

Injunctive, monetary relief. The magistrate did not abuse his discretion when he imposed permanent injunctive relief and monetary relief against Lalonde, the appellate court also ruled. Lalonde argued that the ban on mortgage-related activity was overly broad because the loans underlying Count 5 were originated by a third party, not by 1st Guaranty. However, Lalonde was involved in the extensive mortgage refinancing scheme, notwithstanding any evidence showing that the actual loans originated with the third party, the court explained.

With respect to the monetary relief, Lalonde’s argument that the FTC was “double dipping” by seeking disgorgement when he had already paid restitution in his criminal case was without merit. The magistrate’s total judgment against Lalonde subtracted the payments Lalonde made with respect to the criminal monetary provisions in his criminal case, the appellate court explained.

Right to counsel. The appellate court also dispensed with Lalonde’s assertions that the magistrate improperly denied access to certain assets so that he might defend himself in the civil case and that the magistrate should have appointed counsel to represent him. Lalonde had no right to use the frozen assets at issue for his defense, and other arguments regarding the release of assets amounted to an attempt to relitigate an asset freeze to which he consented, the appellate court explained. As for the magistrate’s decision not to appoint counsel, the magistrate did not commit a clear error of judgment. The appellate court noted however, that appointment of counsel might have “sharpened the issues presented” in the case.

The case is No. 11-13569.

Attorneys: Michael Daniel Bergmanm for FTC. Stephen Lalonde, pro se.

Companies: 1st Guaranty Mortgage Corp.

MainStory: TopStory ConsumerProtection FederalTradeCommissionNews AlabamaNews FloridaNews GeorgiaNews

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