Opinion ID: 3049440
Heading Depth: 3
Heading Rank: 2

Heading: Clarification of the Injunction

Text: On June 30, 2008, after entry of the injunction, the defendants filed an emergency motion under Federal Rule of Civil Procedure 60(b) requesting an extension of time to comply with the injunction, additional time to obtain licenses or come into compliance with state law in twelve states, and permission to continue to provide services for debt consolidation in those states. The defendants alleged that the Commission intentionally interfered with their efforts to comply with the injunction by issuing a misleading press release about their culpability and sending a dossier to various “state[s] where Defendants sought approval to do business.” The Commission and the defendants also disagreed about the states in which Express was legally qualified to provide services. The monitor filed motions for the district court to clarify in which states the defendants were in compliance so the monitor could determine which notice he needed to send. The district court conducted an evidentiary hearing to resolve all of these issues and determined that Express was qualified to operate in four of the contested states, and was not qualified in 21 states. The district court denied the Rule 60(b) motion for additional time to comply with the injunction or to obtain licenses 11 because the defendants could have anticipated the regulatory timeframe and there was no equitable basis for modifying or extending the deadlines to which the parties had stipulated previously. The district court directed the monitor to send out the required notices by July 25, 2008, and the monitor complied. After the district court entered its order, the defendants, with the assistance of the Counseling Center, sent out their own notices to clients in eight of the states in which the district court had ruled Express was not legally authorized to conduct debt consolidation. The notices encouraged clients to “cancel” their original contracts and immediately sign new contracts with the Counseling Center or one of the other defendants. The notices promised the clients that this process would allow clients to continue their debt management plans and that Express would service these contracts. After the district court clarified that Express was not qualified to conduct business in certain states, Express transferred back to the Counseling Center those contracts it had previously accepted where, at the time of acceptance, Express was not qualified to conduct business. Express had accepted the transfer of 721 contracts with Florida residents, 701 contracts with Georgia residents, 600 contracts with Ohio residents, 287 contracts with Tennessee residents, and 169 contracts with Kentucky residents. Florida, Georgia, Ohio, Tennessee, and 12 Kentucky were among the 21 states in which the district court ruled Express was not qualified to conduct business. C. Contempt Proceedings and the Final Order of Disgorgement On January 28, 2009, the Commission moved the district court to direct the defendants and the Counseling Center to show cause why they should not be held in civil contempt. The Commission alleged that the contempt defendants continued to solicit and execute contracts for debt consolidation with customers in states where the district court had ruled they were not authorized to conduct business, and continued to collect payments from customers in the same states despite specific provisions enjoining them from doing so. The district court entered an order to show cause and ordered the contempt defendants to respond by February 9, 2009. The district court held an evidentiary hearing and the parties filed briefs and proposed findings of fact and conclusions of law on the matter. On March 27, 2009, the district court issued its findings of fact and conclusions of law and held the defendants and the Counseling Center in contempt. The district court found that the Commission had proved by clear and convincing evidence that the defendants, and the Counseling Center acting in concert, had violated the injunction in three ways. First, the district court found that the contempt defendants continued to collect from existing clients who 13 cancelled their contracts in response to notices sent by the monitor. Second, Express had accepted transfers of contracts from the Counseling Center for persons who resided in states where Express, at the time of the transfer, was not in compliance with state law. Third, the defendants and the Counseling Center offered and executed contracts in states where the defendants were not in compliance with state law when they offered or executed the contracts. As part of the remedy, the district court held that the injunction should be modified to effectuate its purpose following its violation. The contempt order detailed the proposed modifications, but did not modify the injunction. The district court later entered a separate order that modified the injunction. The contempt order also ordered that the contempt defendants “effect complete compensation to those aggrieved by the contempt” and “disgorge all amounts collected from consumers” who “are parties to the . . . post-order consumer contracts” the district court found to be unlawful. The district court concluded that it was “unable to compute the exact amounts to be disgorged from the exhibits” and directed the monitor “to determine the amount to be disgorged.” Over seven months, from May 2009 through January 2010, the monitor submitted a series of reports updating his calculation of the fees to be disgorged based on information he continuously gathered from the defendants. The contempt 14 defendants objected to some of the calculations in these reports, and the district court accepted a few of these objections and directed the monitor to adjust his calculations accordingly. On January 28, 2010, the district court entered its final judgment of disgorgement and consumer redress. The district court found that the total amount of fees to be disgorged was $594,987.90. The final order of disgorgement specifically stated that it was entered “to remedy contempt via disgorgement and [was] not a money judgment.” The district court stated that the judgment “provides monetary relief for civil contempt, is solely remedial in nature, and is not a fine, penalty, punitive assessment, or forfeiture.” The district court also included in the order of disgorgement that the Commission “may apply to the Court to convert any unpaid balance of this civil contempt remedy to a money judgement.” The defendants and the Counseling Center were ordered to disgorge this amount within 30 days of January 27, 2010.