CFPB Files Brief Before 7th Circuit Defending More Than $43 Million Judgment Against Former Owner of Debt-Relief Company

The CFPB has filed a brief challenging all the arguments advanced by a debt-relief company and its former owner in their appeal of a more than $43 million judgment against the former owner to the U.S. Court of Appeals for the Seventh Circuit.

By way of background, the CFPB sued a dissolved debt-relief company and its former owner for violations of the Consumer Financial Protection Act and the Telemarketing Sales Rule.  Following entry of judgment against both defendants, the court awarded the CFPB $2,117,133.28 in restitution and a $41,123,897 civil money penalty against the former owner.  WBK covered the court’s award here.  The former owner and the company subsequently appealed to the Seventh Circuit.

On appeal, the company and its former owner contended that the judgments against them should be vacated based on two fundamental issues.  First, the defendants argued that the district court erred by granting default judgment against the company because it purportedly had no notice of the suit given that it had been dissolved before the suit was filed and process was served on its former president.  In their view, to effect service of process on a dissolved company under Illinois law, the company’s registered agent or the Illinois Secretary of State must be served.

The defendants further argued that the district court’s decisions declining to vacate default judgment against the company and granting summary judgment against the former owner based on that default judgment were erroneous because they relied on the allegedly improper service of process.  Second, the defendants contended that the district court erred in awarding restitution and civil money penalty in a collective amount of more than $43 million.

The CFPB filed a brief disputing all of these contentions.  As to the service-of-process issue, the Bureau responded that Federal Rule of Civil Procedure 4(h)(1)(B) (which governs service in federal court) explicitly permits service of process on an officer of the corporation.  The Bureau contended that the service methods provided by Illinois law that the defendants identified are in addition to other methods, including serving an officer of the corporation.  And as to the monetary award, the Bureau responded that Seventh Circuit precedent provides that restitution is an appropriate means to “refund[] to customers the amount that has not yet been returned by” the perpetrators of a scheme deceiving consumers into paying monies.

The case remains pending before the Seventh Circuit, which has yet to hear oral arguments from the parties.