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Federal Trade Commission v. Swatsworth

United States District Court, W.D. North Carolina, Charlotte Division

April 18, 2018




         THIS MATTER is before the Court on the Motion to Strike (Doc. No. 35) filed by on January 12, 2018 by Plaintiff Federal Trade Commission. Defendants filed a response on January 26, 2018. Plaintiff filed a reply on February 1, 2018, and Defendants filed a surreply on February 15, 2018. For the following reasons, Plaintiff's Motion is granted in part, denied in part.

         I. Background

         A. Factual Background

         Defendant ACDI Group, LLC (“ACDI”) is a North Carolina limited liability corporation registered, owned, and controlled by Defendant Anthony Swatsworth (“Swatsworth”). Defendant Solutions to Portfolios, LLC (“STP”) is a North Carolina limited liability corporation also registered, owned, and controlled by Swatsworth. ACDI is a debt purchasing company, and STP is a debt collection company. During the relevant time period, the two businesses operated from the same address. STP collected upon all debts acquired by ACDI, and STP has also collected upon debts owned by two other entities. The finances of the two companies completely overlapped during the 2014 year.

         In 2014, Swatsworth negotiated a purchase of debt portfolios through Craig Manseth of United Debt Holdings (“UDH”). Swatsworth had worked with Manseth and UDH in the past. Manseth brokered a purchase of past-due payday loans from SQ Capital, LLC (“SQ Capital”). Swatsworth knew that SQ Capital was owned by Joel Tucker, and Swatsworth told Manseth that he had heard bad things about Tucker. Manseth urged Swatsworth to sample the portfolio and told him that everything would be “Okay.” Swatsworth stated that ACDI was “one of the guinea pigs to sample it and purchase it.” On July 24, 2014, ACDI purchased the portfolio, containing approximately 2, 335 purported past-due payday loans, from SQ Capital for $24, 812.25. The aggregate unpaid balance of the purported debts in the file was $992, 490. The contract identified the seller as SQ Capital and the original lender as (“500FastCash”). Swatsworth did not receive a bill of sale from the original lender, but he testified that it is the customary practice in the industry for brokers, such as UDH, to not normally provide bills of sale from the original lender.

         STP began contacting consumers to collect on the purported debts on July 28, 2014. Immediately, Defendants experienced issues with multiple accounts. Each day, two or more purported borrowers disputed the debts and provided documentary evidence that they had repaid the loans or had never taken out a loan. Defendants collected this information and provided it to UDH. Defendants continued to contact purported borrowers from the portfolio until August 15, 2014, when Manseth sent Swatsworth an email directing him to stop contacting individuals from the portfolio. The email stated: “Anthony- Shut whole file down. Keep what you've collected and futures. Tylor will refund on Tuesday.” Defendants retained the payments they had received from non-disputed accounts, but ceased contacting individuals from the portfolio. Defendants also received and retained forty-five additional payments after August 15, 2014 from individuals that they had contacted before Manseth instructed them to shut the file down. The last payment Defendants received was on May 29, 2015. Defendants also received a complete refund of the amount paid for the portfolio from SQ Capital by September 2014. All told, Defendants collected $30, 397.29 from the 500FastCash portfolio in addition to the full refund of the purchase price.

         The loan information contained in the 500FastCash portfolio that Defendants purchased was falsified. 500FastCash is a registered trademark of Red Cedar Services, Inc. (“Red Cedar”), which had engaged AMG Services, Inc. (“AMG”) as the exclusive servicer for 500FastCash loans during the relevant time period. Further, the loan information in the portfolio does not match any recorded customer information from actual 500FastCash reports.

         B. Procedural Background

         Pursuant to a subpoena issued during the FTC's investigation of the 500FastCash portfolio, the FTC took Swatsworth's testimony on September 23, 2015. Swatsworth testified about the actions of Tucker, SQ Capital, and UDH. The FTC informed Defendants that they were also under investigation for their debt collection practices in March 2017.

         The FTC filed its complaint in this matter on June 22, 2017, alleging that Defendants violated: (1) Section 5(a) of the FTC Act, 15 U.S.C. § 45(a), which prohibits “unfair or deceptive acts or practices in or affecting commerce;” and (2) Section 807(2)(A) of the FDCPA, 15 U.S.C. § 1692e, which prohibits a debt collector from using “any false, deceptive, or misleading representation or means in connection with the collection of any debt.” The Complaint seeks a preliminary injunction, a permanent injunction to prevent future FTC Act violations by Defendants, equitable monetary relief, and costs.

         Defendants, in their answer, asserted seven affirmative defenses: (1) waiver, (2) estoppel, (3) bona fide error, (4) condition of mind defense, (5) compliance with FTC, (6) lack of requisite intent, and (7) lack of knowledge.

         Discovery in this matter was set to close on November 1, 2017. In their pre-discovery disclosures, Defendants identified Swatsworth as the only individual that they would use to support their claims or defenses. On August 11, the FTC specifically requested that Defendants produce “[c]all scripts used in the collection of consumer debt, ” “[c]ompliance policies and training materials used in the collection of consumer debt, ” and “[a]ll documents related to consumer complaints.” The FTC also requested that Defendants “[i]dentify all personnel tasked with legal compliance regarding consumer debt collection, including but not limited to compliance with the FDCPA.” In response, Defendants produced a 132-page “STP Group Compliance Policies and Procedures” document, one page of a telephone call script for answering machines or voice mail for STP, and a PDF document of consumer complaints and the responses to those complaints. Defendants listed Swatsworth as the only individual tasked with legal compliance regarding consumer debt collection. After multiple requests, Defendants also provided a list of approximately 100 employees who worked for Defendants in 2014 and 2015. And following this Court's Order granting the FTC's motion to compel, Defendants produced contact information for those employees on November 22, 2017.

         On November 16, 2017, the FTC filed a motion for summary judgment. After receiving an extension of time, Defendants responded on December 22, 2017. The FTC now moves to strike seven exhibits that Defendants attached to its December 22, 2017 response to FTC's motion for summary judgment. The FTC ...

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