Antitrust Law Daily Wrap Up, CONSUMER PROTECTION—D. Nev.: FTC allowed discovery of financial documents in deceptive payday loan suit, (Aug 31, 2015)

By Linda O’Brien, J.D., LL.M.

In an action against payday lenders affiliated with American Indian tribes regarding the offer and sale of high-fee, short-term payday loans, the FTC was allowed to compel production of documents that were relevant to showing the existence of a common enterprise among the defendants, according to a magistrate judge in the federal district court in Las Vegas (FTC v. AMG Services, Inc., August 28, 2014, Ferenbach, C.).

Following an investigation of consumer complaints relating to the offer and sale of high-fee, short-term payday loans, the FTC filed a complaint against 18 payday lenders affiliated with American Indian tribes for engaging in deceptive practices and deceptive collection practices in violation of the FTC Act, the Truth in Lending Act (TILA), and the Electronic Fund Transfer Act (EFTA). In December 2012, a stipulated preliminary injunction and bifurcation order were entered. The bifurcation order divided the litigation into a liability and a relief phase and provided that no discovery regarding the claims or defenses of certain defendants would occur until the relief phase.

In March 2014, the court determined that the FTC Act applied to tribal chartered corporations and entered summary judgment in favor of the FTC. Discovery is proceeding in the relief phase of the action and before the court were the following discovery motions: two FTC motions to compel and lending companies’ motion to compel.

FTC’s motion to compel. The court found that the FTC’s request to compel production of documents identifying (1) defendant auto racing team Level 5 Motorsports’ sponsors and compensation and (2) nonparty BA Services’ employees and transactions between BA Services and lending company AMG Services owner Scott Tucker were reasonably calculated to lead to the discovery of evidence showing the existence of a common enterprise. Tucker’s transfer to millions of dollars from AMG to Level 5 under the description “sponsorship” showed strongly interdependent economic interests or the pooling of asserts and revenues. Moreover, the fact that BA Services was a nonparty was irrelevant since BA Services was used as an intermediary or holding company by Tucker.

Additionally, the FTC’s request for documents produced by the defendants in grand jury proceedings was relevant to the FTC’s claims and did not intrude into the sanctity of the grand jury. The request was limited to the FTC’s claims and did not present a risk of disclosing the grand jury’s mental impressions or thought processes, in the court’s view. Further, the tax returns of Scott Tucker’s wife, Kim, must also be disclosed. Tax returns are not privileged under federal law, and the FTC demonstrated that the returns would show whether she earned any of the substantial payments she received from other corporate defendants.

Defendant Kim Tucker will also be compelled to produce information relating to her life insurance policies and assets over $25,000 as relevant to the common enterprise claim and ability to disgorge ill-gotten gains. Such disclosures were relevant in determining whether the Tuckers and lending companies transacted through a maze of interrelated entities or pooled their assets, the court noted.

Employee defendants’ motion to compel. The court also determined that the FTC should be compelled to respond to discovery propounded by the defendants in connection with three affirmative defenses. The FTC failed to show that the affirmative defenses had “no possible relation or logical connection to the subject matter of the controversy.” If the Commission lacks facts to support the defenses, such as there was no prior policy or rulemaking that legitimized the defendants’ activities that was later reversed, then it must respond to the defendants’ discovery requests by stating that no responsive information exists, the court concluded.

The case is No. 2:12-cv-00536-GMN-VCF.

Attorneys: Blaine T. Welsh, U.S. Attorney's Office, for FTC. Andrew A. Kassof (Kirkland & Ellis LLP) for AMG Services, Inc. Conly J. Schulte (Fredericks Peebles & Morgan LLP) for Red Cedar Services, Inc. Joshua M. Dickey (Bailey Kennedy) for SFS, Inc. Von S. Heinz (Lewis Roca Rothgerber LLP) for AMG Capital Management, LLC, LeadFlash Consulting, LLC and Level 5 Motorsports, LLC.

Companies: AMG Services, Inc.; Red Cedar Services, Inc.; SFS, Inc.; AMG Capital Management, LLC; LeadFlash Consulting, LLC; Level 5 Motorsports, LLC

Cases: ConsumerProtection FederalTradeCommissionNews NevadaNews