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Commonwealths v. DMB Financial, LLC

United States District Court, D. Massachusetts

November 28, 2018




         Before the Court is the Commonwealth's motion to remand and request for costs and expenses. [ECF No. 18]. For the reasons explained below, the motion to remand is GRANTED and the request for costs and expenses is DENIED.

         I. BACKGROUND

         The Commonwealth filed this action in the Superior Court of Suffolk County, Massachusetts on May 14, 2018. [ECF No. 5 at 2]. The Complaint asserts claims under the Massachusetts Consumer Protection Act, Mass. Gen. Laws ch. 93A (“Chapter 93A”), against Defendants DMB Financial, LLC (“DMB”) and Global Client Solutions, LLC (“Global”), and a claim for the unauthorized practice of law against DMB. DMB is in the business of charging consumers fees for negotiating down their debts. [ECF No. 1-2 ¶ 1]. Global is a “dedicated account provider” that maintains and provides services in connection with bank accounts into which financially distressed consumers deposit money pursuant to debt relief plans, including those offered by DMB. [ECF No. 1-2 ¶¶ 15, 58-60]. The accounts serve as a source of funds that DMB can rely on as it negotiates down consumers' debts and for the settlement fees it earns. The Commonwealth claims that DMB made unfair and deceptive representations to financially distressed consumers concerning its debt restructuring program, gave its customers legal advice that it was not licensed to provide, and then enriched itself by pilfering the accounts that Global established and maintained for consumers participating in DMB's debt restructuring program. [ECF No. 1-2 ¶¶ 119-26]. The Commonwealth further alleges that Global violated Chapter 93A by distributing settlement fees to DMB from the consumer accounts that it maintained, without proper authorization and before a consumer had made a payment pursuant to a negotiated settlement that would have entitled DMB to the fees, and also by distributing a fee that was calculated based on an inflated amount of debt. [ECF No. 1-2 ¶¶ 127-30].

         The Commonwealth moved for a preliminary injunction on May 16, 2018, see [ECF No. 5 at 2], and on May 29, 2018, Global removed the action to this Court, claiming that this case arises “under the Constitution, laws, or treaties of the United States.” [ECF No. 1 ¶ 14 (quoting 28 U.S.C. § 1331)]. The Commonwealth filed a motion to remand on June 20, 2018. [ECF No. 18]. Global filed its opposition on July 23, 2018. [ECF No. 30]. The Commonwealth filed a reply on August 1, 2018, [ECF No. 33], and Global filed a notice of supplementary authority on October 2, 2018. [ECF No. 40].


         A defendant may remove a civil action from state court to federal court, if the plaintiff “could have brought it in federal district court originally.” Grable & Sons Metal Prods., Inc. v. Darue Eng'g & Mfg., 545 U.S. 308, 312 (2005) (citing 28 U.S.C. § 1441(a)). To remove an action to federal court, a defendant must file a notice of removal within thirty days of receipt of the complaint and service of summons. 28 U.S.C. § 1446(b); Murphy Bros. v. Michetti Pipe Stringing, Inc., 526 U.S. 344, 354 (1999). Defendants bear the burden of showing the federal court's jurisdiction, Danca v. Private Health Care Sys., Inc., 185 F.3d 1, 4 (1st Cir. 1999) (citing BIW Deceived v. Local S6, Indus. Union of Marine & Shipbuilding Workers of Am., IAMAW Dist. Lodge 4, 132 F.3d 824, 831 (1st Cir.1997)), and that showing “may not be sustained on a theory that the plaintiff has not advanced.” Merrell Dow Pharm., Inc. v. Thompson, 478 U.S. 804, 810 n.6 (1986) (citing Healy v. Sea Gull Specialty Co., 237 U.S. 479, 480 (1915) (“[T]he plaintiff is absolute master of what jurisdiction he will appeal to.”); The Fair v. Kohler Die & Specialty Co., 228 U.S. 22, 25 (1913) (“[T]he party who brings a suit is master to decide what law he will rely upon.”); United States v. Mottaz, 476 U.S. 834, 850 (1986)).

         Congress has granted the district courts federal question jurisdiction over “all civil actions arising under the Constitution, laws, or treaties of the United States.” 28 U.S.C. § 1331. “[T]he vast majority of cases brought under the general federal-question jurisdiction of the federal courts are those in which federal law creates the cause of action.'” Merrell Dow, 478 U.S. at 808. Global claims that two circumstances in which federal district courts have “arising under” jurisdiction even though no federal cause of action has been used by the plaintiff apply here: (1) federal preemption, see [ECF No. 1 ¶¶ 28-33], and (2) the “state-law claims . . . implicate significant federal issues” under the analysis set forth in Grable, 545 U.S. at 312 (citing Hopkins v. Walker, 244 U.S. 486, 490-491 (1917)); see [ECF No. 1 ¶¶ 14-27]; see also Narragansett Indian Tribe v. R.I. Dep't of Transp., 903 F.3d 26, 31 (1st Cir. 2018).[1]


         The Court will briefly review the Telemarketing Sales Rule (“TSR”) and the provisions of the 2010 Debt Relief Amendments that Global claims form the basis of the Commonwealth's complaint. The Court will then consider Global's arguments that the Court has jurisdiction.

         a. The TSR and Global

         In 2010, the Federal Trade Commission amended the TSR to curb deceptive practices associated with debt relief. The amendments prohibit debt relief providers from collecting fees until services have been provided, require specific disclosures, prohibit material misrepresentations, and extend the TSR's coverage to companies that solicit customers through general media advertisements as opposed to just cold-calling. See Telemarketing Sales Rule, 75 Fed. Reg. 48458 (August 10, 2010) (codified at 16 C.F.R. pt. 310). The TSR “permits debt relief providers, ” such as DMB, “to require consumers to place funds designated for the company's fees and for payment to the consumer's creditors or debt collectors in a dedicated bank account.” Id. at 48490. Under a typical arrangement, a financially distressed consumer makes payments into an account at an insured financial institution that can later be drawn upon to cover debts that the relief provider successfully renegotiates, plus fees earned for the negotiating. See 16 C.F.R. § 310.4(a)(5). The funds in such an account belong to the consumer, and the consumer “may withdraw from the relief service at any time without penalty[] and must receive all of the funds in the account” within seven business days of withdrawing from the debt service, less amounts earned by the relief service provider in compliance with the regulations. 16 C.F.R. § 310.4(a)(5)(ii)(E). The TSR restricts when settlement fees may be assessed and how they are calculated, including by prohibiting request or receipt of payment from a consumer's account until the debt service provider has altered the terms of at least one of the consumer's debts and the consumer has made a payment pursuant to the altered agreement. 16 C.F.R. § 310.4(a)(5)(i)(B). Additionally, the fee must be either proportional to the total fee or a percentage of the amount saved, and in either case, it must be calculated based on the amount owed at the time the debt was enrolled in the service. 16 C.F.R. § 310.4(a)(5)(i)(C)(1)-(2).

         Global claims to operate in a “specific niche” for dedicated account providers that was created by the 2010 amendments to the TSR. [ECF No. 1 ¶ 5]. This niche allows entities that are neither insured depositories nor debt relief providers to provide services in connection with a consumer's account, although insured depositories, debt relief providers, and dedicated account providers are all subject to the same regulatory requirements described above. Telemarketing Sales Rule, 75 Fed. Reg. 48490 n.445.

         b. ...

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