FTC v. Consumer Defense, LLC , 926 F.3d 1208 ( 2019 )


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  •                 FOR PUBLICATION
    UNITED STATES COURT OF APPEALS
    FOR THE NINTH CIRCUIT
    FEDERAL TRADE COMMISSION,               No. 18-15462
    Plaintiff-Appellee,
    D.C. No.
    v.                     2:18-cv-00030-
    JCM-PAL
    CONSUMER DEFENSE, LLC, a
    Nevada limited liability company;
    CONSUMER LINK, INC., a Nevada             OPINION
    corporation; BENJAMIN R. HORTON,
    in his individual and corporate
    capacity;
    Defendants,
    and
    PREFERRED LAW, PLLC, a Utah
    professional limited liability
    company; AMERICAN HOME LOAN
    COUNSELORS, a Utah limited liability
    company; CONSUMER DEFENSE
    GROUP, LLC, FKA Modification
    Review Board, LLC, a Utah limited
    liability company; CONSUMER
    DEFENSE, LLC, a Utah limited
    liability company; BROWN LEGAL,
    INC., a Utah corporation; AM
    PROPERTY MANAGEMENT, LLC, a
    Utah limited liability company;
    FMG PARTNERS, LLC, a Utah
    2               FTC V. PREFERRED LAW
    limited liability company; ZINLY,
    LLC, a Utah limited liability
    company; JONATHAN P. HANLEY, in
    his individual and corporate
    capacity; SANDRA X. HANLEY, in her
    individual and corporate capacity;
    AMERICAN HOME LOANS, LLC, a
    Utah limited liability company,
    Defendants-Appellants,
    _____________________________
    THOMAS W. MCNAMARA,
    Receiver-Appellee.
    Appeal from the United States District Court
    for the District of Nevada
    James C. Mahan, District Judge, Presiding
    Argued and Submitted September 14, 2018
    San Francisco, California
    Filed June 17, 2019
    Before: Johnnie B. Rawlinson, Paul J. Watford,
    and Michelle T. Friedland, Circuit Judges.
    Opinion by Judge Rawlinson
    FTC V. PREFERRED LAW                               3
    SUMMARY*
    Federal Trade Commission
    The panel affirmed the district court’s order entering a
    preliminary injunction freezing all of the defendants’ assets
    in connection with Consumer Defense Global’s loan
    modification business operations in an action initiated by the
    Federal Trade Commission (FTC) alleging violations of the
    FTC Act and Regulation O, 12 C.F.R. Part 1015 – Mortgage
    Assistance Relief Services.
    The parties agreed that the FTC brought the action
    pursuant to the second proviso of Section 13(b) of the FTC
    Act, which allows the FTC to seek injunctive relief without
    initiating administrative action, but disputed whether the FTC
    was required to demonstrate a likelihood of irreparable harm
    to obtain relief.
    The panel held that although in the ordinary case a
    showing of irreparable harm was required to obtain injunctive
    relief, no such showing was required when injunctive relief
    was sought in conjunction with a statutory enforcement action
    where the applicable statute authorized injunctive relief. The
    panel further held that circuit precedent to that effect did not
    present an irreconcilable conflict with the holding in Winter
    v. Natural Resource Defense Council, Inc., 
    555 U.S. 7
    , 20
    (2008), and remained valid. The panel concluded that the
    district court committed no error in granting the motion for a
    *
    This summary constitutes no part of the opinion of the court. It has
    been prepared by court staff for the convenience of the reader.
    4                 FTC V. PREFERRED LAW
    preliminary injunction without requiring the FTC to make the
    traditional showing of irreparable injury.
    The panel addressed challenges to the district court’s
    jurisdiction and the scope of the injunction in a concurrently
    filed memorandum disposition.
    COUNSEL
    Karra J. Porter (argued) and Sarah E. Spencer, Christensen &
    Jensen, P.C., Salt Lake City, Utah, for Defendants-
    Appellants.
    Imad D. Abyad (argued), Attorney; Joel Marcus, Deputy
    General Counsel; Alden F. Abbott, General Counsel; Gregory
    A. Ashe and Adam M. Wesolowski, Attorneys; J. Reilly
    Dolan, Acting Director; Bureau of Consumer Protection;
    Federal Trade Commission, Washington D.C.; for Plaintiff-
    Appellee.
    No appearance for Receiver-Appellee.
    FTC V. PREFERRED LAW                               5
    OPINION
    RAWLINSON, Circuit Judge:
    This appeal stems from an action initiated by the Federal
    Trade Commission (FTC) alleging violations of the Federal
    Trade Commission Act, 15 U.S.C. § 45, and Regulation O,
    12 C.F.R. Part 1015 - Mortgage Assistance Relief Services
    (the MARS Rule). Defendants-Appellants Preferred Law,
    PLLC; American Home Loan Counselors; Consumer Defense
    Group, LLC; Consumer Defense, LLC; Brown Legal, Inc.;
    AM Property Management, LLC; FMG Partners, LLC; Zinly,
    LLC; Jonathan P. Hanley; Sandra X. Hanley; and American
    Home Loans, LLC (collectively, Consumer Defense Global)
    appeal the district court’s order entering an injunction
    freezing all of the defendants’ assets in connection with
    Consumer Defense Global’s loan modification business
    operations.1
    Consumer Defense Global contends that the district court
    erred as a matter of law because the court presumed
    irreparable harm, rather than requiring that the FTC
    demonstrate a likelihood of irreparable harm. We have
    jurisdiction pursuant to 28 U.S.C. § 1292(a)(1), and we
    affirm.2
    1
    Consumer Defense-Nevada, Consumer Link-Nevada, and Benjamin
    Horton do not join the instant appeal.
    2
    Consumer Defense Global also challenges the district court’s
    jurisdiction and the scope of the injunction. We address these claims in a
    concurrently filed memorandum disposition.
    6                 FTC V. PREFERRED LAW
    I. BACKGROUND
    In January of 2018, the FTC brought an action in federal
    district court in the District of Nevada against Consumer
    Defense, LLC (Consumer Defense-Nevada); Consumer Link,
    Inc. (Consumer Link-Nevada); Benjamin Horton, an attorney
    employed by Consumer Defense Global; and Consumer
    Defense Global. The FTC alleged that Consumer Defense-
    Nevada, Consumer Link-Nevada, Benjamin Horton, and
    Consumer Defense Global, directed and controlled by
    Jonathan Hanley, Sandra Hanley, and Benjamin Horton,
    “operated as a common enterprise while engaging in the
    deceptive acts and practices” of “luring [financially distressed
    homeowners] into signing contracts for MARS services with
    promises that they [would] receive expert legal assistance . . .
    that [would] stop them from going into foreclosure and
    modify their mortgage loans to make their payments more
    affordable.”
    The FTC asserted that, “through an interrelated network
    of companies” with common ownership, management,
    physical locations, commingled funds, and marketing
    materials, the defendants deceived consumers by regularly
    misrepresenting the likelihood of obtaining a successful
    modification, improperly charging advance fees for
    modification services, suggesting an affiliation with or
    endorsement by government programs, and instructing
    customers to cease making their mortgage payments. As part
    of this common enterprise, the FTC alleged, each of the
    defendants had transacted business in the District of Nevada,
    as well as throughout the United States. The FTC further
    alleged that, in numerous instances, the defendants failed to
    obtain relief for their customers, sometimes never contacting
    the lenders at all. As a result of these practices, consumers
    FTC V. PREFERRED LAW                       7
    incurred substantial fees and penalties, with some entering
    foreclosure and losing their homes.
    In connection with these activities, the FTC charged the
    defendants with two violations of the FTC Act: making
    “deceptive representations regarding substantially more
    affordable loan payments, substantially lower interest rates,
    or foreclosure avoidance” (Count I), and making “deceptive
    representations regarding loan modification services” (Count
    II). The FTC charged the defendants with four violations of
    the MARS Rule: requesting “advance payments for mortgage
    assistance relief services” (Count III); making prohibited
    representations that consumers seeking loan modifications
    “cannot or should not contact or communicate with his or her
    lender” (Count IV) and material misrepresentations regarding
    the likelihood of obtaining a modification, the defendants’
    affiliation with governmental agencies, and the consumer’s
    obligation to make payments on the current loan (Count V);
    and failing to clearly and prominently make required
    disclosures (Count VI). The FTC sought an injunction and
    other equitable relief pursuant to Section 13(b) of the FTC
    Act, 15 U.S.C. § 53(b).
    On the same day, the FTC filed an emergency ex parte
    motion for a temporary restraining order (TRO), for an asset
    freeze, for appointment of a receiver, and for an order to
    show cause (OSC) as to why a preliminary injunction should
    not issue. The district court granted the motion.
    In support of its request for a preliminary injunction, the
    FTC asserted that it was likely to succeed on the merits, and
    that the balance of equities tipped in the public’s favor. The
    FTC maintained that irreparable harm was presumed for
    purposes of a statutory enforcement action, but in a footnote
    8                 FTC V. PREFERRED LAW
    argued that it could nevertheless demonstrate irreparable
    harm: without relief, the FTC asserted, there would be a
    “likely destruction of evidence and dissipation of assets,” and
    more consumers were likely to suffer financial harm from the
    defendants’ activities.
    The defendants filed an opposition to the preliminary
    injunction request. Consumer Defense Global conceded that
    “they failed to make MARS-worded disclosures to some
    consumers,” and “in a number of instances, they collected
    fees for services before the execution of a written agreement
    between the consumer and his or her loan holder or servicer,
    which is a violation of the MARS Rule.” Nevertheless,
    Consumer Defense Global contended that a preliminary
    injunction was unwarranted because they had secured loan
    modifications for the majority of their customers, and with
    only a few exceptions, the FTC failed to demonstrate that
    Consumer Defense Global neglected to provide MARS-
    required disclosures, or that consumers were harmed by the
    absence of required disclosures. Consumer Defense Global
    contended that the FTC did not demonstrate irreparable harm
    or a likelihood of success on the merits.
    Following a hearing, the district court entered an order
    preliminarily enjoining Consumer Defense Global from
    engaging in various business practices that the court
    determined to be in violation of the FTC Act and the MARS
    Rule, as well as freezing all of Consumer Defense Global’s
    assets.
    Consumer Defense Global appealed the district court’s
    order, contending that the district court erred by granting an
    injunction without requiring the FTC to demonstrate
    irreparable harm.
    FTC V. PREFERRED LAW                        9
    II. LEGAL STANDARDS
    “A preliminary injunction should only be set aside if the
    district court abused its discretion or based its decision on an
    erroneous legal standard or on clearly erroneous findings of
    fact. . . .” Puente Arizona v. Arpaio, 
    821 F.3d 1098
    , 1103
    (9th Cir. 2016) (citation and internal quotation marks
    omitted). “We review the district court’s legal conclusions
    de novo, the factual findings underlying its decision for clear
    error, and the injunction’s scope for abuse of discretion.”
    K.W. ex rel. D.W. v. Armstrong, 
    789 F.3d 962
    , 969 (9th Cir.
    2015) (citation omitted).
    III. DISCUSSION
    Section 13(b) of the FTC Act contains two provisos under
    which the FTC may bring an action to enjoin activity in
    violation of the Act. The first proviso applies when the FTC
    intends to initiate administrative action and provides in
    pertinent part:
    Upon a proper showing that, weighing the
    equities and considering the Commission’s
    likelihood of ultimate success, such action
    would be in the public interest, and after
    notice to the defendant, a temporary
    restraining order or a preliminary injunction
    may be granted . . .
    15 U.S.C. § 53(b). This proviso “places a lighter burden on
    the Commission than that imposed on private litigants by the
    traditional equity standard; the Commission need not show
    irreparable harm to obtain a preliminary injunction.” F.T.C.
    10                FTC V. PREFERRED LAW
    v. Warner Commc’ns Inc., 
    742 F.2d 1156
    , 1159 (9th Cir.
    1984) (citations omitted).
    The second proviso allows the FTC to seek injunctive
    relief without initiating administrative action and states:
    “Provided further, That in proper cases the Commission may
    seek, and after proper proof, the court may issue, a permanent
    injunction.” 15 U.S.C. § 53(b) (emphasis in the original).
    Interpreting the second proviso, we have held that:
    [B]ecause the district court has the power
    to issue a permanent injunction to enjoin acts
    or practices that violate the law enforced by
    the Commission, it also has authority to grant
    whatever preliminary injunctions are justified
    by the usual equitable standards and are
    sought in accordance with [Federal] Rule [of
    Civil Procedure] 65(a).
    F.T.C. v. H. N. Singer, Inc., 
    668 F.2d 1107
    , 1111 (9th Cir.
    1982); see also Fed. R. Civ. P. 65.
    The parties agree that the FTC brought the instant action
    pursuant to the second proviso, but dispute whether the FTC
    was required to demonstrate a likelihood of irreparable harm
    to obtain relief. Consumer Defense Global contends that the
    FTC was required to demonstrate a likelihood of irreparable
    harm, as established in Winter v. Natural Resource Defense
    Council, Inc., 
    555 U.S. 7
    , 20 (2008). The FTC counters that
    in a case involving statutory enforcement where the
    governing statute authorizes injunctive relief, irreparable
    harm is presumed, and a court need only weigh the equities
    and consider the likelihood of success on the merits. See
    FTC V. PREFERRED LAW                          11
    F.T.C. v. World Wide Factors, Ltd., 
    882 F.2d 344
    , 346–47
    (9th Cir. 1989), as amended; see also United States v. Odessa
    Union Warehouse Co-op, 
    833 F.2d 172
    , 175–76 (9th Cir.
    1987).
    The FTC’s position is supported by our precedent. See
    World Wide 
    Factors, 882 F.2d at 346
    (“Pursuant to 15 U.S.C.
    § 53(b), the district court is required (i) to weigh equities; and
    (ii) to consider the FTC’s likelihood of ultimate success
    before entering a preliminary injunction. Harm to the public
    interest is presumed.”) (citation omitted) (emphasis added);
    see also 
    Odessa, 833 F.2d at 175
    (“Where an injunction is
    authorized by statute, and the statutory conditions are
    satisfied . . ., the agency to whom the enforcement of the right
    has been entrusted is not required to show irreparable injury
    . . . .” (citations and footnote reference omitted).3
    Consumer Defense Global relies on the well-established
    injunction standard most recently articulated by the Supreme
    Court in 
    Winter, 555 U.S. at 20
    :
    A plaintiff seeking a preliminary
    injunction must establish that he is likely to
    succeed on the merits, that he is likely to
    suffer irreparable harm in the absence of
    preliminary relief, that the balance of equities
    tips in his favor, and that an injunction is in
    the public interest. (Emphasis added).
    3
    It is undisputed that the FTC otherwise satisfied the statutory
    conditions for imposition of an injunction.
    12                 FTC V. PREFERRED LAW
    Our precedent eliminating the requirement of a showing
    of irreparable harm in cases of statutory enforcement, where
    an injunction is authorized by the applicable statute, pre-dates
    the Supreme Court’s Winter decision. Consequently, the
    question arises whether our cases eliminating the irreparable
    harm showing for actions involving statutory enforcement,
    where an injunction is authorized by the applicable statute,
    remain good law. We addressed how to approach this kind of
    question in Miller v. Gammie, 
    335 F.3d 889
    , 899 (9th Cir.
    2003) (en banc). In Miller, we held that if a “court of last
    resort [has] undercut the theory or reasoning underlying the
    prior circuit precedent in such a way that the cases are clearly
    irreconcilable,” the prior circuit precedent cannot stand. 
    Id. at 900.
    If the cases are “clearly irreconcilable,” the prior
    irreconcilable case from the lower court is “effectively
    overruled.” 
    Id. In applying
    the holding of Miller, we have emphasized
    that the “clearly irreconcilable” requirement “is a high
    standard.” Rodriguez v. AT & T Mobility Servs. LLC, 
    728 F.3d 975
    , 979 (9th Cir. 2013). We explained that if we can
    apply our precedent consistently with that of the higher
    authority, we must do so. See 
    id. at 979–80.
    We clarified that
    “[i]t is not enough for there to be some tension between the
    intervening higher authority and prior circuit precedent.” 
    Id. (quoting Lair
    v. Bullock, 
    697 F.3d 1200
    , 1207 (9th Cir.
    2012)).
    Admittedly, there is some tension between the Supreme
    Court’s holding in Winter and our holdings in World Wide
    Factors and Odessa. Winter includes the requirement of a
    showing of irreparable harm, and World Wide Factors and
    Odessa eliminate that requirement for cases involving
    FTC V. PREFERRED LAW                       13
    statutory enforcement where the applicable statute authorizes
    injunctive relief. See 
    Winter, 555 U.S. at 20
    ; cf. World Wide
    
    Factors, 882 F.2d at 346
    ; 
    Odessa, 833 F.2d at 175
    . However,
    as discussed, mere tension between the cases does not meet
    the high standard of irreconcilable conflict. See 
    Robertson, 875 F.3d at 1291
    . Rather, we must determine if the cases can
    be applied consistently. See 
    id. We conclude
    that the cases can be applied consistently.
    Notably, the irreparable harm requirement articulated in
    Winter is also present in earlier Supreme Court cases
    referenced in Winter. See e.g., Amoco Prod. Co. v. Village of
    Gambell, 
    480 U.S. 531
    , 542 (1987) (“[T]he bases for
    injunctive relief are irreparable injury and inadequacy of legal
    remedies . . . .”). Therefore, Winter did not purport to
    introduce the irreparable harm requirement as a new
    component of the preliminary injunction rubric, but clarified
    application of the well-established equitable test for a
    preliminary injunction. Indeed, in Odessa we acknowledged
    pre-Winter that “[t]o obtain a preliminary injunction, the
    movant must ordinarily show that there exists a significant
    threat of irreparable 
    injury.” 833 F.2d at 175
    (emphasis
    added). We then proceeded to describe the exception to the
    ordinary circumstance: when the injunction is sought as a
    corollary to statutory enforcement, and the applicable statute
    authorizes injunctive relief. See 
    id. The D.C.
    Circuit discussed this distinction at some length
    in F.T.C. v. Weyerhaeuser Co., 
    665 F.2d 1072
    , 1081 (D.C.
    Cir. 1981). Addressing 15 U.S.C. § 53(b), the D.C. Circuit
    noted that the Conference Report explaining “the derivation
    and purpose” of § 53(b) confirmed Congressional intent “not
    to impose the traditional . . . standard of irreparable damage
    14                 FTC V. PREFERRED LAW
    . . .” (quoting H.R. Rep. No. 93-624 at 18, (1973), as
    reprinted in 
    1973 U.S. C
    . C. A. N. 2523, 2533). The D.C.
    Circuit emphasized that Congress “intended to codify the
    decisional law” that “lightened the agency’s burden by
    eliminating the need to show irreparable harm.” 
    Id. at 1082.
    In such cases, where the statute specifically authorizes
    injunctive relief, “irreparable injury should be presumed from
    the very fact that the statute has been violated.” United States
    v. Hayes Int’l Corp., 
    415 F.2d 1038
    , 1045 (5th Cir. 1969). By
    specifically authorizing injunctive relief upon a showing that
    the statute was violated, Congress essentially incorporated a
    presumption of irreparable injury into § 13(b). See id.; see
    also 
    Weyerhaeuser, 665 F.2d at 1082
    .
    These cases demonstrate how Winter, World Wide
    Factors, and Odessa can co-exist. In the ordinary case, i.e.
    one not involving statutory enforcement, the traditional
    irreparable injury showing is required. On the other hand, in
    a case involving statutory enforcement, where the applicable
    statute authorizes injunctive relief, the traditional irreparable
    injury showing is not required. Because Winter did not
    address injunctive relief in the context of statutory
    enforcement and because the cases can be easily reconciled,
    the high standard described in Miller for invalidating prior
    cases due to intervening authority has not been met. See
    
    Robertson, 875 F.3d at 1291
    . Thus, our precedent eliminating
    the traditional showing of irreparable harm in cases of
    statutory enforcement, where the applicable statute authorizes
    injunctive relief, remains intact. The district court committed
    no error in presuming the existence of irreparable injury in
    accordance with our precedent.
    FTC V. PREFERRED LAW                     15
    IV. Conclusion
    Although in the ordinary case a showing of irreparable
    harm is required to obtain injunctive relief, no such showing
    is required when injunctive relief is sought in conjunction
    with a statutory enforcement action where the applicable
    statute authorizes injunctive relief. Our precedent to that
    effect does not present an irreconcilable conflict with Winter
    and remains valid. The district court committed no error in
    granting the motion for preliminary injunction without
    requiring the FTC to make the traditional showing of
    irreparable injury.
    AFFIRMED.