Antitrust Law Daily Wrap Up, CONSUMER PROTECTION—D. Nev.: FTC consumer complaint exhibits admitted for summary judgment motion in deceptive payday loan action, (Jan 31, 2014)

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 admit evidence of complaints, recordings, and transcripts by consumers and former employee of the defendants for purposes of resolving its motion for summary judgment, according to a magistrate judge in the federal district court in Las Vegas (FTC v. AMG Services, Inc., January 28, 2014, Ferenbach, C.). However, the defendants’ motion to enforce the permanent injunction was denied.

Following an investigation into consumer complaints about 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. The FTC moved for summary judgment against all defendants. In October 2013, certain defendants agreed to settle the FTC charges in a settlement that was approved by the court. The FTC subsequently withdrew its motion for summary judgment against thesettling defendants, relying primarily on the consumer complaints and statements from former employees of the defendants. The defendants moved to exclude untimely disclosed evidence, to enforce the permanent injunction and judgment, and for sanctions.

The defendants argued that the consumer complaints were untimely disclosed under Federal Rule of Civil Procedure 26(a) and the FTC consumer complaint database, consumer complaint recordings and transcripts, and former employee statements contained hearsay under Federal Rule of Evidence 802.

The court found that the FTC violated the disclosure requirements by not timely disclosing the witnesses it intended to use for its motion for summary judgment and/or trial. The FTC switched witnesses to obtain new statements in support of its claims after serving its initial and amended disclosures, mistakenly characterized witness statements as documents, and failed to supplement their initial disclosures after learning that some material aspect of the disclosure was incomplete or incorrect. Since preclusion of the evidence was a drastic measure, an appropriate remedy was to allow the defendants to inform the jury at trial of the FTC’s failure to comply with the disclosure obligations, the court said.

The court also determined that, although the FTC evidence was hearsay, the evidence was admissible under the residual exception. The court concluded that the evidence (1) had circumstantial guarantees of trustworthiness; (2) showed the material fact of consumer confusion regarding the cost of the loans; and (3) furthered the goal of serving the interests of justice. To bar the consumer complaints would effective halt FTC enforcement actions and hinder the presentation of core information used in the FTC’s investigation and prosecution of cases.

Finally, the defendants’ motion to enforce the permanent injunction was denied as moot. Since the FTC’s motion for summary judgment was withdrawn against the settling defendants, the defendants had obtained the relief they requested.

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