Opinion ID: 3049440
Heading Depth: 3
Heading Rank: 1

Heading: The Complaint and the Stipulated Injunction

Text: As early as August 2003, Randall Leshin, an attorney from Florida, controlled Randall L. Leshin, P.A., and Express Consolidation, Inc., and used these entities to secure tens of thousands of contracts for debt consolidation. Leshin 4 serves as the president of Express and, until January 2009, Charles Ferdon served as the vice president, secretary, and general manager of Express. Under the contracts for debt consolidation or debt management Leshin, P.A., and Express acted as intermediaries between consumers and their creditors for the purpose of obtaining more favorable terms of payment. On December 12, 2006, the Federal Trade Commission filed a complaint against Randall Leshin; Randall L. Leshin, P.A.; Express Consolidation, Inc.; and Charles Ferdon. The complaint alleged that the defendants were conducting “unfair or deceptive acts or practices in or affecting commerce” and deceptive telemarketing practices and other abusive telemarketing acts or practices in violation of the Federal Trade Commission Act, id. §§ 45(a), 53(b), 57b, and the Telemarketing and Consumer Fraud and Abuse Prevention Act, id. §§ 6101–6108. In an amended complaint, the Commission requested injunctive relief, imposition of a constructive trust on consumer fees, and the equitable remedies of disgorgement of profits, restitution, and rescission of the illicit contracts for debt consolidation. The amended complaint also alleged that the defendants engaged telemarketers to conduct illegal telemarketing campaigns, which sent over 6.4 million prerecorded solicitation messages to prospective customers nationwide. 5 These messages announced that Express Consolidation, a certified nonprofit organization, was offering to reduce dramatically the credit card payments of consumers. As alleged, these actions violated the Telemarketing Sales Rule, 16 C.F.R. § 310, and other restrictions on automated telemarketing by not allowing any consumer who answered the phone to connect to a live sales representative, delivering messages to thousands of people on the National “Do Not Call” Registry, and placing repeated calls to consumers who specifically requested not to be called by Express or telemarketers working on its behalf. The complaint alleged that the defendants mischaracterized the status of Express as a nonprofit entity, when in truth, Leshin or Leshin, P.A., a for-profit entity, received all fees from the contracts. In addition, the complaint alleged that the defendants misrepresented critical terms of the contracts for debt consolidation by making false claims about the program fees, the effects on interest rates and credit reports, and the total savings that would result from the program. The advertisements and contracts falsely represented that the defendants were qualified to offer services in every state and that any fees were adjusted to conform to state requirements, when in truth no fees were adjusted to comply with state limitations and the defendants were not qualified to offer services in a number of states. In early 2007, after the Commission filed its complaint, Leshin and Ferdon 6 incorporated Debt Management Counseling Center, Inc., and directed the employees of Express to secure contracts for debt consolidation in the name of the Counseling Center. The Counseling Center is wholly owned by RLL Holding Company, of which Leshin is the sole shareholder and director. Ferdon served as the president of the Counseling Center. The Counseling Center has only two directors, Matt Wiley and Michael Bradford, both of whom are employees of Express. The Counseling Center has no employees, and Leshin controls and supervises the actions of its directors and officers. The Counseling Center was never named as a defendant in the complaint filed by the Commission. In March 2008, the defendants agreed to settle the charges against them, and the parties stipulated to an injunction, which the district court entered on May 5, 2008. Although the Counseling Center was not a named defendant in the original complaint, many provisions of the injunction apply to the Counseling Center, and Leshin acknowledged on behalf of the shareholders of the Counseling Center that they had received a copy of the injunction. The injunction enjoined the named defendants and their representatives, which the injunction defined as “successors, assigns, officers, agents, servants, employees and those persons in active concert or participation with Defendants who receive actual notice of this Order by personal service or otherwise.” The injunction enjoined the defendants and their 7 representatives from making certain false representations regarding their services for debt consolidation or engaging in deceptive or abusive telemarketing practices; charging fees, or executing contracts with fees, that “are prohibited by or exceed applicable restrictions under state law” in the state in which the consumer resides; failing to comply with all requirements of state law, including “licensing, registration, reporting, audit, insurance, [and] escrow account” requirements in the state in which defendants offer services for debt consolidation; and “[o]ffering, entering into, or accepting the transfer of, a contract for debt consolidation services with a person when Defendants are not, at the time of the offer, transfer or execution of the contract, in compliance with legal requirements imposed by the state in which the person resides.” The injunction also appointed a temporary monitor “for the purpose of monitoring certain payments and accounts, [and] providing notice to existing customers.” The injunction required the monitor to notify “existing clients” of the defendants and inform them of their rights. “Existing clients” are defined as persons who signed a contract for debt consolidation with the defendants, “including contracts under the name ‘Debt Management Counseling Center,’ . . . or Debt Management Counseling Center, Inc.”; have not notified the defendants that they are canceling their contracts; and have made payments under the contracts to 8 Leshin, Leshin, P.A., or the Counseling Center during the 60 days before entry of the injunction. The injunction divided the monitor’s task of notifying existing clients between those states where Express was legally qualified to provide services for debt management and those where it was not. The injunction defined when Express is “qualified to provide debt management services” in a state. If a state did not issue licenses for entities that offer or provide services for debt consolidation, the injunction required the defendants, within 30 days of the date of the injunction, to have “fulfilled any requirements imposed by state law to provide such services, including any registration, reporting, audit, insurance, escrow account or trust account requirements.” If a state issued licenses for such entities, the injunction required the defendants, within 60 days of the date of the injunction, to have either a valid license from the state authority or a pending application for a valid license, in which “the state has unambiguously stated in writing that it will permit Express . . . to offer debt consolidation services to residents of that state who are currently being serviced by Express . . . for debt consolidation services based on the pending application.” Clients in states where Express was not legally qualified to provide services were to receive notice that they could cancel their contracts immediately or 9 contract with the provider identified by the Commission. If the existing clients in these states failed to inform the monitor of their preferences within 120 days of the injunction, their contracts would be transferred to the provider identified by the Commission. Clients in states where Express was legally qualified to provide services, but whose contracts were signed with Leshin or Leshin, P.A., were to receive notice that they could cancel their contracts immediately, contract with the provider identified by the Commission, or transfer their contracts to Express. If the existing clients in these states failed to inform the monitor of their preference within 120 days of the injunction, their contracts would be transferred to Express. Under the injunction, if a client elected to cancel a contract, the defendants were required to cease collection from that client within three days. The injunction also ordered Leshin, Leshin, P.A., and Express to pay $40 million and Ferdon to pay $380,000 for restitution to consumers. These funds were to be deposited in a specified trust account under the control of the courtappointed monitor and used primarily to pay the creditors of existing clients, with the remaining balance to be paid to a fund administered by the Commission to be used for monetary redress to consumers and for administration of that fund. Soon after the entry of the injunction, the Counseling Center transferred its contracts to Express. As of May 15, 2008, Express had accepted the transfer of all 10 the contracts of the Counseling Center, including contracts from states in which Express was not in compliance with state law.