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Consumer Financial Protection Bureau v. Universal Debt & Payment Solutions, LLC

United States District Court, N.D. Georgia, Atlanta Division

March 21, 2019

CONSUMER FINANCIAL PROTECTION BUREAU, Plaintiff,
v.
UNIVERSAL DEBT & PAYMENT SOLUTIONS, LLC, et al., Defendants.

          ORDER

          RICHARD W. STORY, UNITED STATES DISTRICT JUDGE

         The Consumer Financial Protection Bureau (“CFPB”) brings this suit against numerous individuals and entities in connection with a massive debt-collection scheme. According to the CFPB, several individuals created limited liability companies in Georgia and New York to perpetrate a debt-collection scheme targeting millions of consumers. All said, through that operation, they collected more than $5 million in false or inflated debts.

         After nearly four years, the case is now at summary judgment. Currently before the Court are Defendants Sumant Khan and S Payment Processing Solutions, LLC's Motion for Summary Judgment [450]; the CFPB's Motion for Summary Judgment [451]; and Defendant Tasha Pratcher's Motion for Permission to File an Answer Out of Time to the CFPB's Motion [547]. After reviewing the record, the Court enters the following Order.

         Background[1]

         I. Factual Background

         The Defendants in this case are a set of individuals and limited liability companies that the CFPB accuses of working together in a fraudulent scheme to collect debts from consumers that did not exist or that Defendants were not entitled to collect. Defendants are best organized into two groups: (1) the LLC Defendants and (2) the Individual Defendants.

         A. The LLC Defendants

         The LLC Defendants include: (1) Universal Debt & Payment Solutions (“UDPS”); (2) Universal Debt Solutions; (3) WNY Account Solutions and WNY Solutions Group, LLC; (4) Check & Credit Recovery, LLC; (5) Credit Power, LLC; and (6) S Payment Processing & Solutions, LLC (“S Payment”). UDPS, Check & Credit Recovery, Credit Power, and S Payment are all Georgia companies. Meanwhile, Universal Debt Solutions, WNY Solutions Group, and WNY Account Solutions were based out of New York.

         According to the CFPB, each of the LLC Defendants played a part in the debt-collection scheme. At least three of them-UDPS, WNY Account Solutions, and Credit Power[2]-did so from an office located at 1401 Peachtree Street in Atlanta.

         For its part, UDPS-a company that operated with no employees-compiled the telephone numbers and addresses of people with debts through an account with CBC Innovis, and also broadcast automated collection calls using a separate account with Global Connect. UDPS maintained merchant processing accounts as well, which allowed it to take payments from consumers who used their bankcards.

         Similarly, WNY Account Solutions (which also operated under the fictitious name, “WNY Account Solutions Group” and self-identified as a debt- collection agency) used a Global Connect account to broadcast automated collection calls to consumers. Credit Power did the same, and also paid for WNY Account Solutions' account with Global Connect, as well as a similar account held by Check & Credit Recovery. And, like UDPS, Credit Power opened an account with CBC Innovis to “track Debtor's [sic] addresses and phone numbers.” (Dkt. [454-16].)

         The other companies engaged in similar conduct. For instance, WNY Solutions Group operated as a collection agency in Buffalo, while Universal Debt Solutions' operations have been characterized as “collect[ing] aggressively from third parties (debtors), ” both from its own “significant debt collection portfolio” and also on behalf of Credit Power on a contingency basis. (Dkt. [454-6].) Universal Debt Solutions did so using a variety of names, including “Payday Loans & More” and “Worldwide Requisition.” It also took funds from the debt-collection scheme to purchase real property and generate rental income.

         S Payment, on the other hand, was organized later than the other LLC Defendants, in April 2014. The same day, S Payment executed a contract with Marcus Brown that permitted Brown and his affiliated companies to process debt-collection payments using S Payment's merchant processing account. In return, S Payment received a 5% commission.

         B. The Individual Defendants

         The Individual Defendants are: Marcus Brown, Mohan Bagga, Sumant Khan, Sarita Brown, and Tasha Pratcher. Each of them was affiliated with one or more of the LLC Defendants. Marcus Brown, though, was in one way or another associated with them all.

         1. Marcus Brown

         From 1991 to 2005-years before the events giving rise to this lawsuit-Marcus Brown held jobs at multiple collection agencies. In 2005, he pleaded guilty in New York to grand larceny, scheme to defraud, and identity theft. Among other things, the State charged Brown with committing credit card fraud.

         Years later, Brown began traveling between Buffalo and Atlanta to help the LLC Defendants collect consumer debts. Brown was an owner, officer, or registered agent of nearly all the LLC Defendants. Notably, he organized Universal Debt Solutions then advised the company's clients on how to organize a debt-collection business. Brown also taught WNY Solutions Group how to improve collectors' performances and drafted collection letters. Similarly, when asked to help set up a debt-collection business in Atlanta, Brown provided Credit Power with what he called the “Brown Doctrine.” It included call scripts and recommendations on how to motivate debt collectors to increase productivity. Later, Brown took control of Credit Power, along with Mohan Bagga. Furthermore, Brown purchased and sold debt for WNY Account Solutions. He also paid the bills for its merchant processing and Global Connect accounts. And he used S Payment's merchant processing accounts as well.

         In addition to the advice he provided, Brown also drafted scripts that the LLC Defendants's employees used when making collection calls, as well as demand letters that were sent to consumers. He also recruited employees for the LLC Defendants, owned or controlled nearly half of the 70 phone numbers the debt collectors used, and opened Global Connect accounts for three LLC Defendants-UDPS, WNY Account Solutions, and Check & Credit Recovery-which they used to broadcast collection calls. Brown further compiled information about consumers by purchasing payday loan leads and alleged debt portfolios and performing skip tracing. He also facilitated the collection of debts by using payment processing accounts “to take and process consumers' credit and debit card payments.” In the end, Brown received $321, 492.00 in checks from the LLC Defendants. That does not include cash payments or personal expenses Brown paid using the LLC Defendants' corporate accounts.

         2. The Other Individual Defendants

         • Mohan Bagga: Mohan Bagga was mainly affiliated with Credit Power and UDPS. Mr. Bagga filed the articles of organization and served as an officer and manager for both companies. He also controlled their bank accounts and handled the accounting for UDPS. As for the debt-collection scheme, Mr. Bagga's primary role was opening merchant payment processing accounts. Although, he also opened an account with CBC Innovis for Credit Power to “track Debtor[s'] addresses and phone numbers, ” and another for UDPS to “obtain current telephone number[s] and address[es] of debtors.” Mr. Bagga received $22, 730.00 in checks from the LLC Defendants.

         • Sumant Khan: Sumant Khan is a licensed attorney in India. In 2014, he organized S Payment. Mr. Khan was S Payment's only officer. As a result, he had control over the company's two payment processing accounts-one with Electronic Merchant Services (“EMS”) and another with PaidSuite-and he signed the contract giving Marcus Brown access to those accounts. A total of $22, 750.00 in checks were made out to Mr. Khan by WNY Account Solutions and UDPS.

         • Sarita Brown: Sarita Brown is Marcus Brown's sister. She served as an officer of UDPS and WNY Account Solutions, and also a manager of Universal Debt Solutions. At Marcus Brown's direction, Ms. Brown opened bank accounts for Universal Debt Solutions and WNY Account Solutions. Then she signed blank checks from those accounts over to Marcus Brown. And she gave him permission to sign her name on documents “whenever he needed it.” When she did these things, Ms. Brown was aware of her brother's recent criminal history and that it was related to credit card fraud.

         • Tasha Pratcher: Tasha Pratcher is Marcus Brown's estranged wife. In 2005, Ms. Pratcher entered a guilty plea for one count of petit larceny for her part in the identity theft scheme that Brown also pleaded guilty to. Seven years later, Ms. Pratcher organized UDPS, together with Brown. Ms. Pratcher also owns a business called RX Office Solutions. That company never made money or had any expenses. Rather, Ms. Pratcher used RX Office Solution's bank account as a personal account where she deposited money that Brown gave her. Altogether, checks were written to Ms. Pratcher from WNY Account Solutions totaling $122, 910.00. Ms. Pratcher used that money, in part, to pay rent for the 1401 Peachtree Street office. She also helped Credit Power by drafting a “Cease and Desist” letter to rival companies instructing them to stop using consumer information they took from Credit Power, and later a form termination letter for Credit Power employees.

         C. The Debt-Collection Scheme[3]

         From 2011 to 2015 Defendants were responsible for millions of collection calls to consumers seeking to collect debts that were not owed or that Defendants were not authorized to collect. They acquired consumers' contact information in two ways. First, Marcus Brown purchased debt portfolios and payday loan leads, which gave them access to names, addresses, places of employment, Social Security numbers, telephone numbers, and bank account information. Second, Defendants performed “skip tracing” to verify and update existing contact information.

         Defendants then used this information to place automated calls to consumers. They opened accounts with Global Connect LLC, a telephone broadcasting service, and furnished robo-call scripts that Global Connect recorded and broadcast to tens of thousands of consumers nationwide. The robo-call messages told consumers that they were accused of bank fraud or that a legal claim had been filed against them and that they must call a specified phone number to avoid legal action.[4] If a consumer called back or pressed “9” during the message, they were directed to one of 70 different phone numbers linked to Defendants' Global Connect accounts.

         Eventually, consumers were connected to a member of the debt-collection staff. Those staff members often falsely identified themselves as litigators and threatened legal action or even arrest if the consumer did not pay up immediately. They had scripts and guides telling them how to respond when asked specific types of questions. And if the employee speaking to the consumer-referred to as a “litigator”-obtained a verbal commitment to pay, then the employee would transfer the consumer to an “auditor” who took the consumer's payment information. As stated previously, Defendants had multiple payment processing accounts, which allowed them to take payments from consumers through credit or debit card transactions.

         As for the purported debts, Defendants misrepresented the amount owed, misrepresented their authority to collect on the purported debt, and took more in credit or debit card payments than the consumers authorized. None of the money collected actually went towards paying off any debt. Instead, Defendants took it for themselves. They used the collections to purchase properties, pay personal bills, and cover other expenses.

         D. Damage to Consumers

         Hundreds of consumers complained about Defendants' debt-collection practices. They lodged complains with the Better Business Bureau and in the form of chargebacks-i.e., by disputing credit or debit card transactions. The CFPB has also produced sworn declarations from eight consumers who were personally affected. In brief, consumers reported: (a) frequent robo-calls; (b) debt collectors contacting third parties such as employers and family members; (c) threats of legal action or arrest; (d) use of fake identities; (e) misrepresentations about debts being owed or the caller's right to collect; and (f) failure to provide written confirmation of the amount of the debt and the name of the creditor to whom the debt was owed.

         Overall, a total of $5, 554, 285.00 was processed through the various LLC Defendants' merchant processing accounts. Only $292, 801.00 was ever refunded to consumers through chargebacks. Accordingly, Defendants collected at least $5, 261, 484.00 from the debt-collection scheme.

         II. The CFPB's Claims

         The CFPB is an independent agency of the United States responsible for protecting consumers through the enforcement of federal consumer financial laws. 12 U.S.C. § 5491(a). It brought this action on behalf of the consumers injured as a result of Defendants' debt-collection practices.

         The CFPB alleges violations of the Consumer Financial Protection Act (“CFPA”), 12 U.S.C. §§ 5531, 5536(a), and the Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. §§ 1692-1692p. The Complaint includes seven counts based on the conduct described above:

         (1) that Defendants' concealment and failure to meaningfully disclose their identities to consumers during collection calls, along with their use of threats and making of false allegations, all had the “natural consequence” of harassing, oppressing, or abusing consumers in violation of the FDCPA, 15 U.S.C. § 1692d (Count I);

         (2) that Defendants' misrepresentations to consumers were “false, deceptive, [and] misleading” under the FDCPA, 15 U.S.C. § 1692e (Count II);

         (3) that by failing to provide consumers a written notice within five days of their initial communication, Defendants violated the FDCPA's requirement that debts be validated, 15 U.S.C. § 1692g (Count III);

         (4) that Defendants' violations of the FDCPA also constitute violations of the CFPA, 12 U.S.C. § 5536(a)(1)(A) (Count IV);

         (5) that Defendants' misrepresentations to consumers qualify as both “deceptive” (Count V) and “unfair” (Count VI) practices under the CFPA, 12 U.S.C. §§ 5531, 5536(a)(1)(B); and

         (6) that the Individual Defendants knowingly or recklessly provided “substantial assistance” to the LLC Defendants' unfair or deceptive conduct in violation of the CFPA, 12 U.S.C. § 5536(a)(3) (Count VII).

         II. Procedural History

         The CFPB filed this lawsuit on March 26, 2015. The landscape has changed dramatically since then.

         A. Dismissed Parties

         Originally, there were 18 named Defendants. In addition to the Individual and LLC Defendants named above, the CFPB asserted claims against four payment processors-Global Payments, Inc.; Pathfinder Payment Solutions, Inc.; Frontline Processing Corp.; and EMS-as well as Global Connect. However, those parties moved for sanctions under Rule 37 of the Federal Rules of Civil Procedure. Ultimately, the Court granted those motions, finding that the CFPB had failed to produce a knowledgeable witness for a deposition under Rule 30(b)(6) and blatantly disregarded the Court's instructions about certain objections. The Court therefore struck Counts VIII, IX, X, and XI of the Complaint, which left no claims against the four payment processors and Global Connect. So, those Defendants were dismissed from the case. (See Dkt. [436].)

         Separately, the CFPB named Varinderjit “Veena” Bagga as a Defendant, alleging that she participated in the debt-collection scheme. But the CFPB later moved to dismiss M. Bagga, with prejudice, (Dkt. [449]). Shortly after that, she was dismissed from the case.

         B. Parties In Default

         A number of the LLC Defendants have defaulted. In fact, only two have not-S Payment and WNY Account Solutions. As for the others, the CFPB moved for an entry of default against Universal Debt Solutions, WNY Solutions Group, Check & Credit Recovery, and Credit Power on September 2, 2015, after those parties failed to file answers or motions to dismiss, (Dkt. [150]). Before that, counsel for UDPS withdrew, (Dkt. [122]). So, the Court ordered UDPS to show cause why its Answers should not be sticken, given that corporations cannot proceed pro se in federal court, (Dkt. [177]). UDPS did not respond, however. And as a result, on November 24, 2015, the Court struck its Answers and directed the Clerk to enter default against UDPS, (Dkt. [199]).

         Accordingly, the pending motions relate only to S Payment, WNY Account Solutions, and the Individual Defendants.

         Discussion

         Before reaching the merits of the case, the Court provides a brief overview of the two statutes involved in this lawsuit: the CFPA and the FDCPA.

         I. ...


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