UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA

Transcription

1 Case :-cv-0-rgk-ss Document Filed 0// Page of Page ID #: 0 0 Thomas W. McNamara (SBN 0) mcnamarat@ballardspahr.com Telephone: () -00 Facsimile: () - Court-Appointed Receiver Daniel M. Benjamin (SBN 00) benjamind@ballardspahr.com Andrew W. Robertson (SBN ) robertsona@ballardspahr.com Chrysta L. Elliott (SBN ) elliottc@ballardspahr.com BALLARD SPAHR LLP Telephone: () -00 Facsimile: () - Attorneys for Court-Appointed Receiver FEDERAL TRADE COMMISSION, v. UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA Plaintiff, FORENSIC CASE MANAGEMENT SERVICES, INC., et al., Defendants. CASE NO. LACV--RGK (SSx) RECEIVER S FINAL ACCOUNT AND REPORT DMWEST #0 v Case No. LACV--RGK (SSx)

2 Case :-cv-0-rgk-ss Document Filed 0// Page of Page ID #:0 Peachtree Street Suite 000 Atlanta, GA 00- Telephone: The Federal Trade Commission s ( FTC ) underlying case has been resolved by a settlement in which all Defendants stipulated to a permanent ban from the debt collection business. The work of this receivership is also now complete. Accordingly, the Court-appointed Receiver submits this Final Account and Report to the Court. The Receiver has also, this date, filed an Application to the Court for an Order () Discharging the Receiver; and () Approving Receiver s Final Application for Fees and Expenses. I. FTC Action and Appointment of Receiver This action was commenced with the filing of the FTC s Complaint on September, 0. A Temporary Restraining Order ( TRO ) was entered September, 0 (ECF No. ), which included my appointment as Temporary Receiver for Receivership Defendants Forensic Case Management Services, Inc. ( FCMS ), Specialized Recovery, Inc.( SRI ), and Commercial Receivables Acquisition, Inc. ( CRA ) and their various dbas, successors, assigns, and affiliates. (TRO, L, page.) A Preliminary Injunction, which designated the Receiver as permanent, was entered on September, 0 (ECF No. ). The individuals named in the Complaint and Relief Defendants named in the FTC s Amended Complaint filed June, 0 (ECF No. 0) are not subject to the receivership. All Defendants have now settled with the FTC. Separate Final Judgments were entered as to Individual Defendants Frank Lindstrom (March, 0, ECF No. ) and Kevin Medley (March, 0, ECF No. ) both Judgments include permanent bans from the debt collection business and monetary relief with funds delivered to the FTC to be deposited into an FTC fund for equitable relief. Final Judgment was entered as to Relief Defendants Vesper Collins, LLC, The Court reissued the Preliminary Injunction on October, 0 (ECF No. ) as an incomplete copy of the order was posted to the docket (pages and were missing). Corrections have been made by replacing the incomplete copy with a full copy, which now appears at docket entry []. DMWEST #0 v Case No. LACV--RGK (SSx)

3 Case :-cv-0-rgk-ss Document Filed 0// Page of Page ID #: 0 0 Ramillies, LLC, and Innsbruck, LLC on January, 0 (ECF No. ). This Judgment provides for Monetary Relief only with funds delivered to the FTC to be deposited into an FTC fund for equitable relief, including, but not limited to, consumer redress, any attendant expenses for the administration of the redress and to satisfy any Court authorized payments to the Permanent Receiver. (Section I.F, pages 0-.) The Receivership Defendants and their respective dbas are included in the stipulated Final Judgment entered January, 0 (ECF NO. ). By that Final Judgment, Receivership Defendants (labeled Corporate Settling Defendants ) and the Individual Settling Defendants (David Hynes, Lorena Quiroz-Hynes, James Hynes and Heather True) are also permanently banned from the debt collection business. They also grant to the FTC all their rights and claims to any frozen assets in the Receiver s possession and the net proceeds from the sale of any remaining assets with all funds in the receivership account to be transferred to the FTC. The monetary relief provisions provide that all funds paid to the FTC by the Settling Individual Defendants and by the Receiver be deposited to a fund administered by the FTC for equitable relief, including, but not limited to, consumer redress, any attendant expenses for the administration of the redress and to satisfy any Court authorized payments to the Permanent Receiver from the assets received from the Corporate Settling Defendants. II. The Defendants Business The Receiver s Preliminary Report to the Court, filed September, 0 (ECF No. ), fully described the various iterations and operational details of the collection business of Defendants. As set forth in that Preliminary Report, the Receiver concluded that the business could not go forward lawfully and profitably. See Preliminary Report (ECF No. ), pages -. /// /// DMWEST #0 v Case No. LACV--RGK (SSx)

4 Case :-cv-0-rgk-ss Document Filed 0// Page of Page ID #: 0 0 III. Receivership Summary The Receiver took initial possession of Receivership Defendants business in Van Nuys, California on September, 0 and took immediate steps to insure compliance with the TRO by suspending operations and pulling down the active websites. See Exhibit A, Preliminary Report, pages - for details of activities immediately after taking possession of the business. A. Business Sites Receivership Defendants active operations were conducted from leased office space, totaling approximately,00 square feet, in a small commercial building at Friar Street in Van Nuys, California. They also deployed six private mail drops to which mail was directed. They employed approximately 0 people at the Friar Street site. A smaller 00 square foot site at 0 Sylvan Street nearby was primarily utilized as an exercise room, at least as of the time we took possession. B. Preliminary Report the Lawful and Profitable issue The TRO authorized and directed the Receiver to [c]ontinue and conduct the business of Receivership Defendants in such manner, to such extent, and for such duration as the Receiver may in good faith deem to be necessary or appropriate to operate the business profitably and lawfully, if at all; provided, however, that the continuation and conduct of the business shall be conditioned upon the Receiver s good faith determination that the business can be lawfully operated at a profit using the assets of the receivership estate[.] ( X(N)). As noted above, the Receiver filed a Preliminary Report on September, 0, in which he concluded that deceptive practices as to clients and debtors alike are so ingrained in this business that it cannot be operated lawfully, at least in the context of this Receivership. (Preliminary Report at.) /// /// DMWEST #0 v Case No. LACV--RGK (SSx)

5 Case :-cv-0-rgk-ss Document Filed 0// Page of Page ID #: 0 0 C. Preliminary Injunction The Court issued its Preliminary Injunction on September, 0 (ECF Nos. and -). It designated the Receiver appointment as permanent, incorporated the asset freeze and the deceptive practices prohibitions from the TRO, and reaffirmed that the business should not be operated by the Receiver unless it could be accomplished lawfully and profitably. ( X(N)). D. Wind Down Applications On February, 0, the Court issued an Order ( Minute Order, ECF No. 0), that the Receiver s suspension of business operations and release of all employees are appropriate, and requiring that Defendants furniture and equipment be placed in storage. In moving forward to implement the Minute Order, our goal was to costeffectively proceed with the receivership of an inoperative and unlawful business whose operations had been suspended, but not yet liquidated. This presented several challenges. We set out first to vacate the leased premises and return possession to the landlord, store the business records in a manner in which they would be accessible to the parties, and store the furniture and equipment, all on the most cost-effective terms available. We communicated with creditor clients to inform them that the Receivership Defendants would not be in a position to assist at least until the date of the scheduled trial in January, 0. We instructed the creditors to take whatever steps they felt were appropriate to protect their rights, offered them the opportunity to Opt Out of their assignment agreements, and for those whose claims had been forwarded to an attorney, provided the attorney s contact information. We communicated with attorneys handling litigated debt collection cases and advised them that these cases were technically stayed by the terms of the Preliminary Injunction. This message was relayed in a global letter to all attorneys in December, 0. We followed up that letter with further notices, DMWEST #0 v Case No. LACV--RGK (SSx)

6 Case :-cv-0-rgk-ss Document Filed 0// Page of Page ID #: 0 0 including the opt-out procedure offered to creditor clients, and offering to respond to individual requests for guidance. As to debtors, we made no active collection efforts as the Preliminary Injunction included a direction (Section X(D) at page -) that the Receiver not attempt to collect or receive any amount from a consumer if the Receiver believed the consumer was a victim of the unlawful conduct alleged by the FTC. In order that the Court and the parties be fully advised, I submitted an Interim Report on March, 0 which detailed the steps summarized above. E. Implementation of Final Judgment Against Receivership Defendants By the Final Judgment entered January, 0, the Settling Defendants granted all their rights and claims to any assets under the Receiver s control to the FTC. (ECF No., Section IV.A., page.) The FTC instructed the Receiver to immediately dispose of the remaining furniture and equipment on the best terms possible within the discretion of the Receiver. After giving advance notice of our plan to the parties, we completed this liquidation in March, 0. The Final Judgment also provides that all funds held in the Receiver s account be transferred to the FTC. That transfer was made on April 0, 0 in the amount of $0,. which represented the balance in the account as of that date. F. Receivership Finances From inception of the receivership on September, 0 through April 0, 0, receipts into the receivership were $,., composed primarily of funds from pre-receivership frozen accounts ($,.), and funds recovered from attorneys for collections or return of unexpended court costs ($,.). Disbursements were also $,.. The primary category of disbursements was $,. in professional fees to the Receiver and his professionals, as authorized by the Court by Orders entered January, 0 (ECF No. 0) and May, 0 (ECF No. ). The account balance of $0,. was transferred to the FTC on April 0, 0, as directed by Section IV.A. of the Final Judgment, DMWEST #0 v Case No. LACV--RGK (SSx)

7 Case :-cv-0-rgk-ss Document Filed 0// Page of Page ID #: 0 0 leaving the account with a zero balance. Exhibit A to this Final Account and Report is a Receipts and Disbursements Summary for the receivership, September, 0 through April 0, 0. The receivership retained the firm Squar Milner to prepare and file federal and state income tax returns for 0 and 0 for the three Receivership Defendant entities and to update FCMS s state and federal payroll tax filings for Q 0 (the last quarter in which it had a payroll) and year-end 0. Squar Milner s services are detailed in the Receiver s final fee application filed with this Final Account and Report. Simultaneous with this Final Account and Report, the Receiver has filed a final fee application for the - month period February, 0 through April 0, 0. The Final Judgment as to Receivership Defendants entered January, 0 (ECF No. ), at Section IV.D, provides that funds of the Receivership Defendants (identified as Corporate Settling Defendants in the Final Judgment) delivered to the FTC by the Receiver shall be used to satisfy any Court authorized payments to the Permanent Receiver. The Final Judgment entered January, 0 (ECF No. ) as to the Relief Defendants similarly provides that the funds delivered to the FTC pursuant to that Final Judgment shall be used to satisfy any Court authorized payments to the Permanent Receiver. IV. Business Records of Receivership Defendants In February, 0, all remaining paper records of Receivership Defendants were consolidated into one storage unit in Van Nuys, California, which now houses 0 metal file cabinets and 0 boxes of records. Rent on this storage unit is $ per month. The proposed Order of Discharge provides that the Receiver keep After the account balance of $0,. was transferred to the FTC on April 0, 0, the receivership has received additional funds ($, as of the date of this Final Account). In order to simplify the accounting procedures, the submitted proposed Discharge Order provides that those funds be held as a reserve to pay costs of document storage and destruction with any unexpended funds disbursed to the FTC. DMWEST #0 v Case No. LACV--RGK (SSx)

8 Case :-cv-0-rgk-ss Document Filed 0// Page of Page ID #: 0 0 the documents in storage for ten months, provide access to the FTC during that period, and thereafter destroy the documents with the cost of such storage and destruction to be paid from a reserve held by the Receiver. The rough estimated direct costs of this storage and destruction is $,0 (ten months storage at $ per month and $,000 for document shredding and file cabinet disposition). V. Discharge of the Receiver As Receiver, I submit that I have completed my duties as set forth in the initial Temporary Restraining Order of March, 0 and the Preliminary Injunction of September, 0. Accordingly, I respectfully request to be discharged with an Order providing for the following:. The Receiver s Final Account and Report is accepted and approved.. The Receiver s final application for fees and expenses for the - month period February, 0 through April 0, 0 is hereby approved as follows: $,.0 fees to the Receiver; $,. to Ballard Spahr, LLP as reimbursement of receivership operating expenses advanced by the firm; $,. fees and expenses to Ballard Spahr, LLP as Receiver s counsel; $,0. fees to receiver s accountant, Jeffrey P. Matthews; and $,. fees and expenses to Squar, Milner, the Receiver s tax accountant. These fees and expenses shall be paid within ten (0) days of this Order by Plaintiff FTC as such payments are authorized to be paid from (i) funds paid to the FTC by the Receiver pursuant to the Monetary Relief provisions (Section IV) of the Final Judgment and Order entered January, 0 (ECF No. ); and (ii) funds paid to the FTC by the Relief Defendants pursuant to the Monetary Relief provisions (Section I) of the Final Judgment and Order entered January, 0 (ECF No. ).. The Receiver is directed to maintain the storage arrangements for Receivership Defendants business records for a period of ten months from the date of this Order, to provide the FTC reasonable access to those records during that period, and to thereafter destroy those business records ( Records Retention ). DMWEST #0 v Case No. LACV--RGK (SSx)

9 Case :-cv-0-rgk-ss Document Filed 0// Page of Page ID #: 0 0. The Receiver is authorized to retain funds delivered to the receivership after April 0, 0 (when the Receiver transferred all funds in the receivership account to the FTC) through the date of this Order as Reserve Funds. From those Reserve Funds, the Receiver shall pay, without further order of this Court, the costs for Records Retention and other final administrative costs as such costs are approved by the FTC. Any unexpended Reserve Funds shall be paid to the FTC.. Except as to the Records Retention duties in this Order, the Receiver and his agents are discharged, exonerated, and released from all duties, liabilities, claims, and responsibilities arising out of and/or pertaining to the receivership. This Court will maintain jurisdiction over any matter which may arise in connection with the Receivership or Records Retention.. The Receiver is discharged and the receivership is terminated.. The Receiver s bond is exonerated. Dated: May, 0 /s/ Thomas W. McNamara THOMAS W. MCNAMARA Court-Appointed Receiver DMWEST #0 v Case No. LACV--RGK (SSx)