The Second Circuit recently upheld a court order holding two individual co-owners and co-directors of several corporate debt collector entities personally liable for over $10 million after such entities violated the Federal Trade Commission Act (FTCA) and the Federal Fair Debt Collection Practices Act (FDCPA).
In Federal Trade Commission (FTC) v. Federal Check Processing, Inc., the FTC brought suit against 13 corporate debt collector entities and the two co-owners and co-directors of those entities. The FTC alleged that the defendants’ combined debt collection practices violated the FDCPA and FTCA. The corporate defendants’ business consisted primarily of collecting payday loan debts, which they bought from consumer-debt creditors and compiled into debt portfolios.
The U.S. District Court for the Western District of New York granted summary judgment. In so doing, the court found that the co-owners and co-directors directed nearly all of their approximately 25 employees, telephone debt collectors, to routinely contact debtors by telephone and falsely identify themselves as “processors,” or law enforcement personnel, accuse debtors of check fraud or a related crime, and threaten the debtors with criminal prosecution if they did not pay their debts.
Moreover, on certain occasions, the collectors called friends, family members, employers, or co-workers of debtors, informing them that the debtors owed a debt, had committed a crime in failing to pay it, and faced possible legal repercussions. If debtors or other interested parties sought further information about the debt, the collectors typically refused to provide such information. The court held that the corporate defendants had violated the FTCA and FDCPA, and that the two individual co-owners and co-directors were personally liable for $10.85 million, the amount of money that the defendants had received because of the violations.
On appeal, one of the individual defendants did not contest the district court’s conclusion that the corporate defendants violated the FTCA and FDCPA. Instead, he argued that the court erred by concluding that he was personally liable for the violations and setting the measure of equitable monetary relief as the total proceeds of the debt collection enterprise. The Second Circuit, however, affirmed the district court’s ruling that the individual defendant had both sufficient authority over the corporate defendants, as well as knowledge of their practices, to be held individually liable for their misconduct as a matter of law. Indeed, the individual defendant was a co-founder, co-owner, co-director, and general manager of all but potentially one of the corporate defendants. He also maintained a personal office within the corporate defendants’ office and a desk in the “collection call” area from which dunning calls were made by the companies’ employees. Finally, he had signature authority with respect to the companies’ bank accounts, and in the more than four years at issue, received approximately $1.3 million in compensation from the corporate defendants.
Further, the Second Circuit concluded that the district court’s disgorgement assessment was in an appropriate amount because it was a reasonable approximation of the total amounts received by the defendant companies from consumers as a result of their unlawful acts.
Brian J. Malcom is a partner at Waller in Birmingham. Top banks and financial institutions seek his counsel in all areas of litigation, including contract disputes, trust and fiduciary litigation, consumer claims, and bond and warrant claims. Brian was profiled in 2017 by the Birmingham Business Journal as one of Birmingham’s Rising Stars of Law. He was also named a Top Attorney for Banking Law in 2018 in Birmingham Magazine’s annual peer-reviewed survey.