Illinois Federal Court Awards CFPB More than $43 Million Against Former Owner of Debt-Relief Company

In a recent order, a federal judge for the U.S. District Court for the Northern District of Illinois awarded the CFPB $2,117,133.28 in restitution and a $41,123,897 civil money penalty against the former owner of a dissolved debt-relief company for violations of the Consumer Financial Protection Act and the Telemarketing Sales Rule.

Following entry of default judgment against the company and its former owner, the court requested additional briefing concerning the impact of two recent Supreme Court cases on the relief that the CFPB sought.  WBK previously covered the court’s order and the memorandum that the Bureau filed in response here.

Ultimately, the court held that the Bureau could recover both restitution of net revenue and a civil monetary penalty.  First, the court considered the Supreme Court’s holding in Liu v. SEC that the SEC could recover only net profits as equitable disgorgement because an equitable result would be to return any ill-gotten gain to the affected parties.  But here, the court explained that the requested restitution is legal — not equitable — in nature because “the Bureau seeks a judgment imposing personal liability [on the former owner] to pay a sum of money.”  Thus, the court concluded that Liu’s limitation on equitable relief does not apply to the legal relief sought here.

Next, the Court considered the Supreme Court’s holding in SEC v. Jarkesy that the SEC could not pursue a civil money penalty through proceedings before an administrative law judge because that process violated the Seventh Amendment right to a jury trial.  But in Tull v. United States, the Supreme Court held “that the trial court and not the jury should determine the amount of penalty, if any.”  Because Jarkesy cited Tull extensively, the court reasoned, Tull remains good law and governs here.  And even assuming that the former owner had a Seventh Amendment jury trial right as to liability, the court reasoned that its grant of summary judgment meant that there was no triable fact for a jury to resolve.  Thus, the court concluded that it could award a civil monetary penalty absent a jury trial.

Finally, the court determined that the Bureau’s calculation of the penalty amount was “more than reasonable and [was] supported by the statute and record evidence.”