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United States v. Commercial Recovery Systems, Inc.

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

March 21, 2017

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.;

          MEMORANDUM OPINION AND ORDER

          AMOS L. MAZZANT UNITED STATES DISTRICT JUDGE.

         Pending before the Court is Plaintiff United States of America's Memorandum in Support of Civil Penalties against Defendant Timothy Ford (“Plaintiff's Memo”) (Dkt. #103). The Court, having considered Plaintiff's Memo, finds Defendant Timothy Ford owes Plaintiff $2, 000, 000 as a reasonable and appropriate civil penalty for his violations of the Fair Debt Collection Practices Act.

         BACKGROUND

         This case commenced in January 2015, and the Complaint named as defendants Commercial Recovery Systems, Inc. (“CRS”), its President, Timothy Ford, and its former Vice President, David Devany. The Complaint alleges that defendants violated Sections 807(2)-(5) of the Fair Debt Collection Practices Act (“FDCPA”) and Section 5 of the Federal Trade Commission Act (“FTC Act”) by impersonating attorneys, attorneys' staff and judicial employees; falsely threatening litigation; falsely threatening wage garnishment and asset seizure; and misrepresenting the character or legal status of a debt. The Complaint seeks civil penalties and a permanent injunction to halt CRS, Ford, and Devany's unlawful practices.

         On April 7, 2016, the Court granted the government's motion for summary judgment against Defendants CRS and Ford (Dkt. #69). In its April 7, 2016 Opinion and Order, the Court described CRS:

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.
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

Id. at 1-2. Based on these findings, the Court held Defendants Ford and CRS liable for injunctive relief, and issued a permanent injunction against both defendants. The Court also held Ford liable for civil penalties, reasoning:

The summary judgment record establishes that Ford was the sole owner and President of CRS up until November 2013. He received daily updates on the company and represented the company in negotiations with government investigations. Ford himself removed David Devany from his role as Vice President. Thus, Ford had the authority to control the company's collection practices. Therefore, Ford is liable for civil penalties for FDCPA violations by CRS.

Id. at 14-15.

         On July 11, 2016, the Court entered an order setting a briefing schedule to determine civil penalties. The Court ordered Plaintiff to submit its brief by August 9, 2016, and Ford to submit his response on September 9, 2016. On August 8, 2016, Plaintiff filed its Memorandum in Support of Civil Penalties against Defendant Timothy Ford (Dkt. #103). Ford did not file a response.

         ANALYSIS

         The Court determined in its April 7, 2016 Opinion and Order that Defendant Ford is liable for civil penalties under the FDCPA and FTC Act (Dkt. #69 at 14-15). Ford had actual knowledge that his collectors were not complying with the FDCPA. The issue before the Court is to determine the proper penalty for Ford's violation of the FDCPA and FTC.

         Section 5(m) (1) (A) of the FTC Act authorizes a civil penalty of up to $40, 000 for each instance of conduct that violates the FDCPA with actual or implied knowledge of the FDCPA. A separate violation of the FDCPA occurs each time a prohibited threat or representation is made to a consumer in a collection contact. United States v. ACB Sales & Service, Inc., 683 F.Supp. 734, 741 (D. Ariz. 1987) (FDCPA enforcement action); United States v. Central Adjustment Bureau, Inc., 667 F.Supp. 370, 385 n.29 (N.D. Tex. 1986) (each use of an improper dunning letter is a separate and distinct violation). In determining the appropriate civil penalty, the Court must take into account the factors listed at 15 U.S.C. § 45(m)(1)(C), which include the degree of culpability, history of prior such conduct, ability to pay, effect on ability to continue to do business, and such other matters as justice may require. The “other matters” many courts consider include injury to the public and the benefits derived from the violations. See, e.g., United States v. Nat'l Fin. Servs., 98 F.3d ...


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