Antitrust Law Daily Wrap Up, CONSUMER PROTECTION—D. Nev.: Payday lenders’ objections to previous orders denied, (Jul 17, 2014)

By Jody Coultas, J.D.

Objections filed by certain payday lenders affiliated with American Indian tribes—regarding the offer and sale of high-fee, short-term payday loans—to order issued by a magistrate judge were denied by the federal district court in Las Vegas. The court also clarified the effect of a previous order issued on May 28 (FTC v. AMG Services, Inc., July 16, 2014, Navarro, G.).

The FTC filed a complaint in 2012, alleging that a group of companies, individuals, and a law firm operated a payday lending operation in violation of the FTC Act and failed to properly disclose certain loan information in violation of the Truth in Lending Act (TILA) and its implementing Regulation Z.

In December 2012, the court entered a bifurcation order, dividing the litigation into two phases: a liability phase and a relief phase. In Phase I, the court would adjudicate the merits of the FTC’s claims for violations of the FTC Act, TILA, and Electronic Fund Transfer Act (EFTA). Phase II would include adjudication of the remaining issues, including individual liability and whether the various defendants constituted a common enterprise.

In July 2013, the Lending Defendants and others defendants stipulated to settle the FTC Act and EFTA claims.

Opposing summary motions were first heard by a magistrate judge, who recommended that a judgment be entered in favor of the agency and against the lenders, attorney, and law firm on counts one and three. On May 28, the court entered a pretrial judgment in favor of the FTC on the agency’s FTC Act and TILA claims. There were two outstanding objections filed by the AMG Services, Inc., SFS, Inc., Red Cedar Services, Inc., and MNE Services, Inc. (Lending Defendants) seeking reconsideration of two previous orders entered by the magistrate judge.

The court denied the Lending Defendants’ first objection finding that the magistrate judge’s order was not in error. The first objection requested reconsideration of the magistrate judge’s denial as moot of the Lending Defendants’ motion to enforce a stipulated agreement. The magistrate found that the motion to enforce was moot because the requested relief had already been granted when the court denied the FTC’s motion for summary judgment. The Lending Defendants argued that allowing the FTC to litigate the FTC Act and EFTA claims against non-settling defendants (The Muir Law Firm, LLC and Timothy J. Muir) in Phase II was a violation of the stipulated agreement because the non-settling defendants’ liability on those claims arose from the conduct of the Lending Defendants. However, the stipulated agreement did not preclude the FTC from pursuing FTC Act and EFTA claims against the Muir Defendants. The stipulated agreement only prevented the FTC from pursuing claims against the settling defendants, even if those claims could potentially find the Muir Defendants liable for the underlying conduct of some of the settling defendants.

All three types of evidence objected to by the Lending Defendants were properly admitted, and the Lending Defendants’ objection was denied by the court. The second objection was to the magistrate judge’s granting in part and denying in part a motion to exclude three types of evidence used in the FTC’s summary judgment motion. Given the wide latitude granted courts in imposing sanctions and the deference given to magistrate judges concerning pretrial matters, the court declined to find that the magistrate judge’s determination that the FTC violated the disclosure requirements or his imposition of a lesser sanction than preclusion were “clearly erroneous or contrary to law.”

The magistrate judge’s admission of evidence was not “clearly erroneous or contrary to law,” according to the court. The Lending Defendants argued that call recordings, transcripts, and consumer complaints in the FTC’s database should have been inadmissible in the FTC’s summary judgment motion because they constituted hearsay without an exception. The magistrate judge found the evidence admissible under the Rule 807 residual exception to hearsay. The magistrate judge properly applied the residual exception to the FTC consumer complaint database even if the Lending Defendants had not been given notice of the FTC’s intent to use the complaints in their motion. There were also sufficient circumstantial guarantees of trustworthiness. It would not have been reasonable for the FTC to “bring [hundreds of] the consumers into court to swear, under oath and subject to cross-examination, that the contents of their complaints were true.” Therefore, the evidence was properly admitted and the Lending Defendants’ objection was denied.

There were no outstanding issues to resolve during Phase I of the litigation. Therefore, as of the date of this order, Phase I of the litigation ended and Phase II has begun.

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 LLP) for SFS, Inc.

Companies: AMG Services, Inc.; Red Cedar Services, Inc.; SFS, Inc.; The Muir Law Firm, LLC; MNE Services, Inc.

Cases: ConsumerProtection FederalTradeCommissionNews NevadaNews