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Federal Trade Commission v. Mobe Ltd.

United States District Court, M.D. Florida, Orlando Division

December 19, 2019



          ROY B. DALTON JR., United States District Judge.

         Before the Court are Synovus Bank's (“Synovus”) Motion to Intervene (Doc. 219) and Receiver's Amended Motion to Approve Settlement with Matthew Lloyd McPhee and Related Entities (Doc. 222 (“Settlement Motion”)). The Federal Trade Commission (“FTC”) and the Special Receiver both oppose Synovus' Motion to Intervene. (Docs. 224, 225.) The Settlement Motion is unopposed. United States Magistrate Judge Daniel C. Irick prepared reports and recommendations (“R&Rs”) for both motions. (Docs. 228, 229.) Synovus objected to the R&R on the Motion to Intervene (Doc. 232 (“Objection”)); the FTC and the Special Receiver both responded (Docs. 235, 236). No. objections were filed to the R&R on the Settlement Motion. All motions ripe, the Court denies the Motion to Intervene and grants the Settlement Motion. In so doing, the Court adopts both R&Rs in full and overrules the Objection.

         I. Background

         The FTC sued MOBE Ltd. and its related entities (collectively, “MOBE”), Matthew Lloyd McPhee and a related entity, Susan Zanghi, and Ingrid Whitney (collectively, “Defendants”) for alleged violations of Section 5(a) of the Federal Trade Commission Act, 15 U.S.C. § 45(a). (Doc. 1 (“Complaint”).) The Complaint alleged Defendants operated a fraudulent internet business education program called “My Online Business Education” or “MOBE” for short. (Id.) Defendants claimed the MOBE program would “reveal a simple 21-step system that will show consumers how to quickly and easily start their own online business and make substantial income.” (Id. at 2.) Alas, like most get rich quick schemes, MOBE failed to deliver on its promises. (See Id. at 3.) According to the FTC, “the vast majority of consumers who join the MOBE program and purchase the costly MOBE memberships lose money.” (Id.) The FTC claimed Defendants defrauded thousands of consumers who collectively paid Defendants over $125, 000, 000 . (Id. at 3-4.)

         With the Complaint, the FTC moved for a temporary restraining order (“TRO”) and a temporary receiver. (Docs. 3, 6.) The Court granted the motions and appointed Mark J. Benet as temporary receiver (“Receiver”). (Doc. 13.) The TRO: (i) enjoined the Defendants from violating Section 5(a) of the FTC Act; (ii) imposed an asset freeze on Defendants and certain third parties; and (iii) appointed the Receiver as temporary receiver of the “Receivership Entities.” (Id.)[1]

         Two third parties, Qualpay and Synovus (“Proposed Intervenors”), were unhappy with the TRO. Qualpay is the credit card processing company that processed MOBE's transactions. (Doc. 38, p. 3.) Synovus is the bank where Qualpay maintains accounts on behalf of merchants during credit card processing. (See id.) They claimed an ownership interest in a portion of the frozen assets (“Reserve Fund”). (Doc. 32, pp. 1-4; Doc. 57, pp. 7-8, 14.).

         The dispute over the Reserve Fund arises from the convoluted structure credit card companies employ to avoid direct interaction with consumers and merchants.[2](Doc. 83, pp. 4-5.) The ownership of the MOBE Reserve Fund, held in Qualpay's Reserve Account at Synovus Bank, was hotly contested during the TRO. And the stakes weren't small-the Reserve Fund contained about $ 6. 3 million. (Doc. 57, pp. 6-7.) So who did that money belong to?

         Synovus and Qualpay claimed the money belonged to them, while the FTC insisted it was MOBE's. (Id.) Synovus and Qualpay filed motions for relief from the TRO and, “to the extent necessary, ” to intervene to obtain the release of the Reserve Fund. (Doc. 32, pp. 1-4; Doc. 57, pp. 7-8, 14.) The Court allowed them to appear and argue the merits of their objections to the TRO (see Docs. 32, 42, 60, 89, 98), then denied both motions in full (Doc. 83 (“August 2018 Order”)). The Court concluded “MOBE is the rightful owner of the reserve account” and Qualpay and Synovus were merely “'middleman' processors without additional entitlement to the funds.” (Id. at 9.) The undersigned ordered the funds turned over to the Receiver and placed in a constructive trust.[3] (Id. at p. 13-14.)

         Approximately nine months after Synovus was ordered to turn over the Reserve Fund, the Receiver moved for appointment of a special receiver regarding potential claims against Qualpay and Synovus. (Doc. 181.) The Receiver explained Synovus had threatened to move to disqualify the Receiver, alleging he was in a position of conflict. (Id. at 1.) The Court appointed Burton Wiand (“Special Receiver”) to handle the receivership estate's potential claims against Qualpay and Synovus. (Id.)

         On June 3, 2019, almost a year after intervention was first attempted, Synovus moved for return of the $6.3 million Synovus had “conditionally paid” to the Receiver. (Doc. 189 (“Claims and Defenses”).) Synovus asserted “defenses” to the FTC and the Receiver and a “claim” for affirmative relief against Qualpay and the Special Receiver. (Id. at 1.) Qualpay filed its “answer” to Synovus' Claims and Defenses. (Doc. 196 (“Qualpay's Reply”).) No. less than four motions were filed attacking the propriety of these pleadings. The FTC moved to limit Synovus's intervention (Doc. 194) and a motion to set a side Qualpay's Reply (Doc. 208). The Special Receiver moved to dismiss the Claims and Defenses (Doc. 195) and a motion to strike or dismiss Qualpay's Reply (Doc. 210).

         At a hearing on a separate matter, [4] U.S. Magistrate Judge Irick, sua sponte, turned his attention to Qualpay's and Synovus' appearance. Both Proposed Intervenors had filed motions with the Court and appeared at the hearing-but compliance with Rule 24 for intervention was questionable. See Fed. R. Civ. P. 24. The Proposed Intervenors had moved for a “special appearance” and, “to the extent necessary, to intervene” to challenge the TRO (see Docs. 32, 57) but (1) after allowing Qualpay and Synovus to appear to argue, the motions were denied (see Doc. 83); and (2) these latest filings and appearances far exceeded the scope of challenging the TRO. (See Doc. 219; Doc. 219-1 .)

         When U.S. Magistrate Judge Irick pressed the Proposed Intervenors, neither contended they complied with Rule 24. (Doc. 214, p. 3.) Neither had obtained leave to intervene to file their latest pleadings (Docs. 189, 196) nor filed a “motion accompanied by a pleading that sets out the claim or defense for which intervention is sought.” (Doc. 214, p. 3 (quoting Fed.R.Civ.P. 24(c)).) U.S. Magistrate Judge Irick struck the Claims and Defenses and Qualpay's Reply with leave to file motions to intervene. (Id. at 3-4.)

         On September 3, 2019, almost one year and three months after the Complaint had been filed, Synovus moved to intervene, arguing both intervention as of right and for permissive joinder. (Doc. 219 (“Motion to Intervene”).) Both the FTC and the Special Receiver oppose intervention. (Docs. 224, 225.)

         Meanwhile, the parties made great strides towards resolution. On September 6, 2019, the Receiver moved for the approval of a settlement between the FTC and Defendants Matthew Lloyd McPhee and related entities. (Doc. 222.) And on December 6, 2019, the FTC filed a Consent Motion for Approval and Entry of Stipulated Order for Monetary Judgment as to Russell W. Whitney's Estate. (Doc. 239.) U.S. Magistrate Judge Irick recommends denying the Motion to Intervene and granting the Settlement Motion. (Docs. 228, 229.) The Court agrees.

         II. Legal Standards

         When a party objects to a magistrate judge's findings, the district court must “make a de novo determination of those portions of the report . . . to which objection is made.” 28 U.S.C. § 636(b)(1). “Parties filing objections to a magistrate's report and recommendation must specifically identify those findings objected to. Frivolous, conclusive, or general objections need not be considered by the district court.” Marsden v. Moore, 847 F.2d 1536, 1548 (11th Cir. 1988) (citation omitted). The district court “may accept, reject, or modify, in whole or in part, the findings or recommendations made by the magistrate judge.” 28 U.S.C. § 636(b)(1). The district court must consider the record and factual issues based on the record independent of the magistrate judge's report. Ernest S. ex rel. Jeffrey S. v. State Bd. of Educ., 896 F.2d 507, 513 (11th Cir. 1990).

         III. Analysis

         The objected-to R&R on the Motion to Intervene is reviewed de novo. The R&R on the Settlement Motion is reviewed only for clear error.

         A. R&R on Motion to Intervene

         Synovus claims the right to intervene or requests permission to intervene under Federal Rule of Civil Procedure 24(a), (b). (Doc. 219, pp. 1-2.) Synovus argues it has a legal interest in the Reserve Fund and disposing of this action “may, as a practical matter, impair or impede Synovus's ability to protect that interest.” (Id.) Synovus also argues permissive intervention is appropriate because it seeks to assert a claim and defense that shares common questions of law or facts with the action, namely who is entitled to the Reserve Fund. (Id. at 2.) The FTC opposes the motion, arguing the sole purpose of Synovus's present intervention “is to retrieve the $6.3 million . . . -the same funds this Court already ordered be frozen and held by the Receiver until resolution of the FTC's underlying lawsuit against the MOBE defendants.” (Doc. 224, p. 2.) And Synovus' claim should be “assessed through a claims process that can determine the validity and ...

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