Filed: Jul. 27, 2010
Latest Update: Feb. 21, 2020
Summary: , CAMBRIDGE has not authorized any person, or other company to make representations on, its behalf concerning fees, credit, any, services to be performed by CAMBRIDGE or any, other matter.those of a credit repair organization, as defined by CROA.
United States Court of Appeals
For the First Circuit
No. 09-1416
ANDREW ZIMMERMAN; KELLY ZIMMERMAN, On Behalf of Themselves and
All Others Similarly Situated,
Plaintiffs, Appellees,
v.
JOHN PUCCIO; RICHARD PUCCIO,
Defendants, Appellants,
CAMBRIDGE CREDIT COUNSELING CORP.; CAMBRIDGE/BRIGHTON BUDGET
PLANNING CORP.; DEBT RELIEF CLEARINGHOUSE, LTD.; CAMBRIDGE CREDIT
CORP.; CYPRESS ADVERTISING AND PROMOTIONS, INC.; BRIGHTON CREDIT
CORP.; BRIGHTON DEBT MANAGEMENT SERVICES, LTD.; BRIGHTON CREDIT
CORP. OF MASSACHUSETTS; CAMBRIDGE CONSUMER CREDIT INDEX, INC.;
SOUTHFORK ASSET MANAGEMENT CORP.; CAPITAL ONE BANK; CAPITAL ONE
CREDIT CARD SERVICES; CAPITAL ONE F.S.B.; CHASE MANHATTAN BANK
U.S.A.N.A.; JPMORGAN CHASE & CO.; PROVIDIAN BANCORP SERVICES;
PROVIDIAN BANK; PROVIDIAN FINANCIAL CORPORATION; USAA FEDERAL
SAVINGS BANK; USAA SAVINGS BANK; FIRST CONSUMER CMC CORP.,
Defendants.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Michael A. Ponsor, U.S. District Judge]
Before
Lipez, Circuit Judge,
Souter, Associate Justice,*
and Selya, Circuit Judge.
Charles P. Kindregan, with whom Nancy L. Perlman and Looney &
*
The Hon. David H. Souter, Associate Justice (Ret.) of the
Supreme Court of the United States, sitting by designation.
Grossman LLP were on brief, for appellants.
David J. Vendler, with whom Richard H. Nakamura, Jr., Maureen
M. Home, Morris Polich & Purdy LLP, G. Oliver Koppell, John F.
Duane, Daniel F. Schreck, Law Offices of G. Oliver Koppell, Stephen
G. Hennessy, Gregory S. Duncan, Garrett Minor Smith, Michie Hamlett
Lowry Rasmussen & Twell, Joseph Seth Tusa, and Whalen & Tusa, P.C.,
were on brief, for appellees.
July 27, 2010
LIPEZ, Circuit Judge. Appellants John and Richard Puccio
appeal from the district court's grant of summary judgment to the
plaintiffs, Andrew and Kelly Zimmerman, on behalf of a class of
clients of Cambridge Credit Counseling Corporation ("Cambridge"),
one of the Puccios' business enterprises, pursuant to the Credit
Repair Organizations Act ("CROA"), 15 U.S.C. §§ 1679-1679j. CROA
was enacted by Congress in 1996 to protect the public from unfair
or deceptive advertising and business practices by credit repair
organizations.
Although the district court entered summary judgment
against the Puccios and multiple corporate defendants for
violations of CROA, the corporate defendants have not appealed.
Instead, the Puccios appeal the judgment against them personally
for the violation of two provisions of CROA, the first making it
unlawful to "make or use any untrue or misleading representation of
the services of the credit repair organization," id. § 1679b(a)(3),
and the second making it unlawful to "engage . . . [in a] course of
business that constitutes or results in the commission of, or an
attempt to commit, a fraud or deception on any person in connection
with the offer or sale of the services of the credit repair
organization,"
id. § 1679b(a)(4).
The Puccios argue that they do not fall within the ambit
of CROA because Cambridge, their credit counseling enterprise, does
not qualify as a "credit repair organization" as defined by the
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Act. They also argue that the district court erred in piercing the
corporate veil when it found them liable for violating Section
1679b(a)(4). Finally, in their primary argument directed at their
substantive liability under Section 1679b(a)(3), the Puccios argue
that the district court did not, in fact, find them liable under
the "misleading representation" provision, id. § 1679b(a)(3).
Alternatively, if the district court did find them liable under
(a)(3), the Puccios argue (but only barely) that the district court
again erred in piercing the corporate veil.
After careful consideration, we affirm the district
court's grant of summary judgment for the plaintiffs. We conclude
that Cambridge was a "credit repair organization" within the
meaning of CROA. We also conclude that the district court
unambiguously held the Puccios liable for misleading
representations under Section 1679b(a)(3) of CROA, and we affirm
that finding of liability based on the court's piercing the
corporate veil analysis. We do not reach the Puccios' liability
under Section 1679b(a)(4), and their attendant arguments about the
summary judgment standard and corporate veil-piercing, because the
Puccios' liability under Section 1679b(a)(3) fully supports the
district court's grant of summary judgment.
I.
In this appeal from the district court's grant of summary
judgment for the plaintiffs, we must recite the material facts in
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the light most favorable to the party opposing summary judgment, in
this case, the defendants. Torres Vargas v. Santiago Cummings, 149
F.3d 29, 30 (1st Cir. 1998). Nonetheless, that requirement has
less significance here because we draw much of our recitation of
the facts from the plaintiffs' statement of material facts, which
forms part of the undisputed record on appeal. It is undisputed
because the district court deemed the plaintiffs' statement of
facts admitted in the absence of proper opposition by the
defendants pursuant to the District of Massachusetts Local Rule
56.1. Zimmerman v. Puccio,
529 F. Supp. 2d 254, 258 n.3 (D. Mass.
2008) ("It must be noted that Defendants failed properly to dispute
many of Plaintiffs' proffered facts. . . . In such instances, the
court has taken the Plaintiffs' account as true."). The rule
requires that a party's opposition to a motion for summary judgment
include a "concise statement of the material facts of record as to
which it is contended that there exists a genuine issue to be
tried, with page references to affidavits, depositions and other
documentation." D. Mass. Local R. 56.1. In the absence of such a
statement, "[m]aterial facts of record set forth in the statement
required to be served by the moving party will be deemed for
purposes of the motion to be admitted by opposing parties." Id.
We have reiterated the importance of such rules to the
district courts in preventing litigants from shifting the burden of
organizing evidence to the district court, and "we treat the
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district court's decision to apply [them] with deference."
Carreras v. Sajo, Garcia & Partners, 596 F.3d 25, 31 (1st Cir.
2010). In this case, the defendants' failure to provide any
citations whatsoever in their opposition statement leaves no doubt
as to their noncompliance. That the parties filed cross motions
for summary judgment does not affect either party's obligation to
comply with the local rule. See P.R. Am. Ins. Co. v. Rivera-
Vázquez,
603 F.3d 125, 132 (1st Cir. 2010) ("A party cannot
circumvent the requirements imposed by an anti-ferret rule simply
by filing a cross-motion for summary judgment and expecting the
district court to do its homework."). The defendants offer no
other reason why we should revisit the district court's decision to
deem the facts in the plaintiffs' statement to be admitted and we
decline to do so.1
A. The Puccio Companies
1. Corporate Structure
1
Due to the defendants' failure to respond to the plaintiffs'
requests for admissions for almost two years, a period well beyond
that required by rule, the district court also deemed them to have
admitted the facts in the plaintiffs' requests for admissions.
Zimmerman, 529 F. Supp. 2d at 271. Because we find that the
district court was well within its discretion to deem the
plaintiffs' statement of facts admitted, and that the facts therein
provide an ample basis for affirming the judgment, we need not rely
on - or reach the legal issues surrounding - the deemed requests
for admissions. To the extent that any fact put forward in the
deemed statement of facts relies for record support on the requests
for admissions, we do not treat that fact as admitted.
-6-
In the early 1990s, John Puccio controlled several
entities doing business in the arena of debt management.2 He
started Cambridge Credit Corp. ("CCC"), a New York corporation, in
1993. Later that year, he founded Brighton Credit Corp. ("BCC"),
also in New York. He served as president of both for-profit
corporations. The companies shared office space and employed
almost identical client contracts.
After CCC and BCC were ordered to cease operating by the
New York Banking Department in 1996,3 John Puccio decided to move
his operations to Massachusetts and start a non-profit
organization. He and his brother Richard co-founded Cambridge,
which adopted the Service Agreements used previously by for-profits
BCC and CCC. It provided the same debt management service as did
those companies and employed their staff. As he had for BCC and
CCC, John Puccio served as president of the company. Richard
Puccio was Cambridge's Vice President and strategic planner. He
was also a board member of the company. In 1996, John Puccio filed
papers to register Cambridge as a nonprofit entity under
Massachusetts law and as a 26 U.S.C. § 501(c)(3) non-profit entity
under federal law.
2
For reference, we have created an Appendix listing the
entities, their acronyms, location and status.
3
The order concluded that the two companies were acting in
violation of prohibitions in New York law on for-profit entities
conducting "budget planning" business and on conducting a "money
transmission business without an appropriate license."
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Shortly after the formation of Cambridge, John Puccio
arranged to have the new company purchase the "intangible assets"
of BCC and CCC for $14.1 million. Although the Intangible Asset
Sale Agreement purported to convey to Cambridge the goodwill in the
trademarks and copyrights of BCC and CCC, neither company had been
issued any trademarks or copyrights at the time of the purchase.
Moreover, the sale was concluded without negotiation and in the
absence of independent representation for Cambridge.
Around the same time, John Puccio also founded
Cambridge/Brighton Budget Planning Corporation ("CBBPC") in New
York as a "credit counseling" agency and another "credit counseling
agency," Brighton Credit Management Corp. ("BCMC"), a Florida
entity. Both were controlled by John Puccio, who handled day-to-
day operations and hiring and oversaw the general operations of the
businesses. They used service agreements virtually identical to
the Puccios' other concerns and advertised their affiliation with
each other and with Cambridge.
All three companies, Cambridge, CBBPC, and BCMC, got
"back office support" for their operations from yet another Puccio
entity, Brighton Credit Corp. of Massachusetts ("BC Mass").4 BC
4
BC Mass changed its name to Brighton Debt Management
Services, Inc. in 2003. Still later, it changed its name to First
Consumers. BC Mass was jointly owned by John and Richard Puccio.
After the first name change, John Puccio became listed as the sole
shareholder and president of the company. Defendants conceded that
"the businesses were essentially the same from Brighton Credit of
Mass to Brighton DMS to First Consumers." For the purposes of this
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Mass worked exclusively for the three Puccio companies. It did not
have clients of its own, but performed all mailing, correspondence,
ongoing customer services, and record-keeping services in
connection with the debt management service being sold by the other
Puccio companies. It also handled Cambridge's "Good Payer" program
and took care of all other matters related to client accounting,
including the central function of communicating with creditors in
order to achieve the re-aging5 of client accounts. If a client
called the phone number provided by Cambridge, a BC Mass employee
would answer.
John and Richard Puccio created and controlled several
additional companies. For example, Debt Relief Clearinghouse Ltd.,
was the marketing arm of the Puccio organization, while Cypress
Advertising and Promotions, Inc., placed advertisements for the
Puccio credit companies. All of the businesses shared employees
and office space, and the managers of one company supervised
employees of the others.
The Puccios treated their companies interchangeably.
They charged expenses for one company to the credit card of
another, while paying the bill with a check from yet another of the
corporations. At least one person who worked for CCC, Cambridge
opinion, we refer to all iterations of that entity as BC Mass.
5
As we discuss in greater detail later in this opinion, re-
aging accounts involves negotiating with creditors to re-label past
due accounts as current.
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and BC Mass at different times directly received the bank
statements and paid the bills of one Puccio company while he was
not an employee of that company, but instead worked for a different
Puccio enterprise. While John Puccio was running Cambridge, the
company paid large sums of money to other Puccio-controlled
companies without consideration. For example, JRJ Associates,
Inc., a company owned by John and Richard Puccio, was paid at least
$150,000 by Cambridge. John and Richard Puccio also purchased
personal items with corporate funds. Personal charges from a
"gentleman's club" and for a yacht appeared on the Puccio
companies' corporate credit card bills.
The Puccios paid themselves salaries from their
corporations. In 2001 and 2003, they were each paid $624,000 by
Cambridge. John Puccio was paid $648,000 in 2004. His total
salary from his credit companies for the period from 1996 to 2004
was $30,987,572, while Richard Puccio's aggregate compensation was
$21,719,908.
2. Corporate Services
Cambridge, CBBPC and BCMC created individualized Debt
Management Plans ("Debt Plans") for clients. Customers were
charged an up front "Design Fee" for the development of the Debt
Plan equal to the amount of one monthly payment as well as a ten
percent monthly fee or twenty-five dollars, whichever was greater.
The plans would set a single monthly payment to be paid by the
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client to the particular Puccio enterprise servicing that client,
which would then be dispersed to the client's creditors. The
Puccio companies would also negotiate with a client's creditors for
better terms on their debt through interest rate reductions or
decreases in principal. They would also attempt to "re-age"
clients' accounts by convincing creditors who were owed late
payments to re-label the accounts as current. In exchange for re-
aging, the Puccio company would commit its customers to making
payments on the account for a set amount of time.
The IRS form accompanying Cambridge's application for
501(c)(3) status, which was signed by John Puccio, stated that the
company's clients would enjoy "Improved Credit Rating." On its tax
returns in 2000, 2001 and 2003, Cambridge described the principal
objective of its Debt Management Program as including "improv[ing]
a consumer's credit rating over time by establishing a consistent
payment history."
Cambridge, BCMC and CBBPC advertised their ability to
improve a client's credit. The three companies' promotional
materials made promises such as "we can help you . . . restore your
credit rating," and "[w]hen you join our debt management program,
we'll be able to help you reestablish your credit." The company
sent out a quarterly newsletter containing advice on how "to
rebuild your credit." Cambridge's website stated that "by taking
advantage of our Debt Management Program, we can help you . . . Re-
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establish Your Credit." The website also had a feature called
"Cambridge Answer Man" to "help people understand the often
confusing world of credit." A customer who used this feature would
be able to click for answers to questions such as "How Can I
Rebuild My Credit?" The welcome package sent to clients after they
enrolled with Cambridge contained a section entitled "A Fresh
Start." The materials asserted, "that is exactly what you have
received by joining our program" and listed "an improved credit
profile" among the "life benefits" received by clients using
Cambridge's program.
The contract sent to clients contained disclaimers that
stated:
The CLIENT understands that CAMBRIDGE
makes no representation about any aspect of
the CLIENT'S credit rating. Creditors will
sometimes report participation in CAMBRIDGE's
program as a "consumer credit counseling" item
on your credit report. Persons with perfect
credit histories may have their credit record
adversely affected. CAMBRIDGE has no control
over reporting or interpretation, as it is
strictly a creditor and lender decision. The
CLIENT's credit rating is outside the scope of
this Agreement, however, at the CLIENT's
request, CAMBRIDGE will provide CLIENT with
credit references based upon CLIENT's payment
history with CAMBRIDGE.
. . .
CAMBRIDGE has not authorized any person
or other company to make representations on
its behalf concerning fees, credit, any
services to be performed by CAMBRIDGE or any
other matter. In the event you were referred
to CAMBRIDGE by another company, you
understand that the other company was not
authorized to make any representations about
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CAMBRIDGE or its services. You agree that all
the representations concerning fees, credit,
refinancing or any services to be performed by
CAMBRIDGE that were made by CAMBRIDGE or
relied upon by you when you signed this
Service Agreement are set forth in this
Agreement. . . . All the obligations of
CAMBRIDGE are set forth in this agreement.
Employees of BC Mass, who responded to phone calls from
Cambridge, BCMC and CBBPC's clients, were trained to speak about
the benefits of re-aging accounts. All employees were coached to
answer questions about how joining a Debt Plan might affect a
client's credit score. The sales scripts used by the Puccio
companies directed their employees to tell clients,
You're already behind with the bills so this
can only help your credit. By making your
payments on time to us we will be able to
bring your accounts back to a current status,
plus establish a credit reference to back you
up when you apply for future financing.
Depending on how far behind a client was, the script instructed an
employee to tell the client, "[s]o long as you follow through with
the program it can only help not hurt."
If a client inquired about settling his or her accounts,
the Puccio employee was directed to say,
settlements can damage your credit almost as
much as a bankruptcy . . . Our program is
designed to get you out of debt and protect
your credit rating . . . Over the course of
the program your credit rating will improve,
making it easier to qualify for financing in
the future.
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If the client persisted, the script required that the employee
respond,
Our program is designed to help you get out of
debt and improve your credit rating. You will
reestablish a good payment history and improve
your debt to income ratio. Over the course of
the program your credit rating will improve.
Employees were directed to closely follow the scripts, and they
were evaluated on how well they adhered to them. Their
compensation, at least for a time, was linked to how many customers
they enrolled because they were paid a commission from the initial
fees paid by clients. At Cambridge, employees could earn bonuses
for high sales, while low sales volumes were penalized.
B. The Zimmermans6
Andrew and Kelly Zimmerman are a married couple. In late
2001, they learned about Cambridge through radio, television, and
internet advertisements. Attracted to the company's non-profit
status and hopeful that it could help the couple deal with their
debt, Andrew Zimmerman called Cambridge's toll-free number. He was
eventually faxed a five-page Service Agreement, which he signed.
The agreement provided that Cambridge would consolidate the
Zimmerman's monthly payments into a single payment, use its best
efforts to reduce the amount of the monthly payment and the
6
Although the plaintiffs' filings indicate that their surname
is spelled "Zimmermann," we, like the district court, continue to
use the incorrect spelling for consistency among the multiple
opinions arising from this action.
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interest rates being paid to creditors, and pay the Zimmermans a
portion of creditor contributions obtained through Cambridge's
"Good Payer Program."7
When the Zimmermans returned the contract to Cambridge,
the company offered them a proposed Debt Plan with a monthly
payment of $798.00. The Zimmermans enrolled in the Debt Plan. In
return for its services, as described above, Cambridge charged a
"Design Fee" in the amount of one monthly payment and a monthly
payment processing fee of ten percent or twenty-five dollars,
whichever was greater.
Without their knowledge, once the Zimmermans enrolled in
the Debt Plan and paid the $798.00 Design Fee, their account was
transferred from Cambridge to BC Mass, a for-profit company. BC
Mass mailed the Zimmermans a welcome packet and proceeded to
administer their account by negotiating a reduction in the interest
rate on some of their debts, eliminating some of their late charges
and fees, and decreasing the minimum payments on some of their
accounts. The Zimmermans were never told that their account would
be handled by a for-profit back office company, or that this
company would be contacting their creditors and would have access
7
Under the Good Payer Program, Cambridge solicited payments
from its clients' creditors in exchange for Cambridge's services.
For every six month period during which a client made all payments
"on time and in the required amount," Cambridge would pay them a
"bonus" of fifty percent of any contributions obtained from the
client's creditors. The record does not disclose any further
details about this program.
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to personal information about them. To the contrary, the contract
the Zimmermans signed with Cambridge explicitly identified the
company as a "not-for-profit organization."
Approximately nine months after signing their contract
with Cambridge, the Zimmermans terminated the relationship in
September 2002. They filed for bankruptcy in late 2003.
II.
This class action law suit originated in 2003, when the
Zimmermans filed a complaint against John and Richard Puccio (the
defendants), Cambridge Credit Counseling Corp., Cambridge/Brighton
Budget Planning Corp., Brighton Credit Management Corp., Cambridge
Credit Corp., Brighton Credit Corp., Brighton Debt Management
Services, Ltd., Brighton Credit Corp. of Massachusetts, and several
additional corporate defendants (the corporate defendants).8 The
Zimmermans' amended complaint charged the defendants with
violations of CROA, 15 U.S.C. §§ 1679-1679j, and with unfair or
deceptive acts or practices in violation of the Massachusetts
Consumer Protection Act, Mass. Gen. Laws ch. 93A.
The district court initially granted the defendants'
motion to dismiss the Zimmermans' federal claims, finding that, as
a non-profit entity, Cambridge was exempt from CROA. On appeal of
that judgment, we vacated the district court's dismissal of the
8
The additional defendants were Debt Relief Clearinghouse,
Ltd., Cypress Advertising and Promotions, Southfork Asset
Management Corp., and First Consumers Credit Management Corp.
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plaintiffs' federal claims. Zimmerman v. Cambridge Credit
Counseling Corp., 409 F.3d 473, 479 (1st Cir. 2005). We concluded
that the statutory exception to CROA liability for "any nonprofit
organization which is exempt from taxation under section 501(c)(3)"
of the Internal Revenue Code, 15 U.S.C. § 1679(a)(3)(B)(i), did not
apply to the defendants simply because they had registered as
section 501(c)(3) entities.
Zimmerman, 409 F.3d at 475-77.
Instead, we held that in order to qualify for the statutory
exemption, an entity "must actually operate as a nonprofit
organization and be exempt from taxation under section 501(c)(3)."
Id. at 478 (emphasis in original).
In 2007, following our remand, the district court
certified a class consisting of consumers whose Debt Plans were
serviced by BC Mass,9 and a subclass consisting of "all individuals
who entered into a contract for a Debt Management Plan with
Cambridge . . . from November 3, 1998 through September 18, 2006."
After almost two years of discovery, the parties filed cross
motions for summary judgment.10 In January 2008, the district court
9
The district court's December 6, 2007 class certification
order defined the class as "[a]ll individuals who at any time after
November 3, 1998 through to the present paid, directly or
indirectly, any money or other valuable consideration to Brighton
Credit Corp. of Massachusetts, Brighton Debt Management Services,
Ltd., or First Consumers Credit Management Corp. for any service
related to the individual's Debt Management Plan."
10
During the intervening time, defendant Cambridge settled
the action against it and was voluntarily dismissed. That
settlement did not release the Puccios or any remaining defendants.
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granted summary judgment for the plaintiffs. The court found that
Cambridge, BCMC, CBBPC and BC Mass operated as Credit Repair
Organizations within the meaning of CROA because they "crossed the
boundary from credit counseling into credit repair with their
continued and insistent representations to consumers that their
services could only help improve clients' credit." Zimmerman, 529
F. Supp. 2d at 275. The court held that Cambridge was not exempt
under CROA's provision for nonprofit organizations because it did
not "in fact and as a matter of law, operate as a nonprofit."
Id.
at 277.
As credit repair organizations, Cambridge, BCMC, CBBPC
and BC Mass were obligated to comply with the specific statutory
requirements of CROA. The district court found that they had not
complied with any of CROA's requirements. Id. at 278.
Specifically, they did not provide consumers with a required
disclosure statement, did not include certain required items in
their service agreements, and did not give consumers a mandatory
separate cancellation form along with the service agreement.
Id.
at 278-79. Additionally, they violated CROA by charging up-front
fees to consumers before they had fully performed the promised
services.
Id. at 279.
Turning to the provisions of CROA directed not just at
credit repair organizations, but at "any person," the court found
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that the Puccios and the corporate defendants were liable for
"mak[ing] or us[ing] . . . misleading representation[s] of the
services of [a] credit repair organization" under 15 U.S.C. §
1679b(a)(3) and for "engag[ing] . . . [in a] course of business
that constitutes or results in . . . an attempt to commit [] a
fraud or deception on any person in connection with the offer or
sale of the services of the credit repair organization" under 15
U.S.C. § 1679b(a)(4). Id. at 279-80. Specifically, the court
found that the Puccio corporations misleadingly represented to
clients that they would be retaining the services of a not-for-
profit when, in fact, their accounts were immediately transferred
to a for-profit corporation,
id. at 279, and that such a
misrepresentation also qualified as "a fraud or deception,"
id. at
280. The court found that all of the corporate defendants and the
Puccios were liable for the activity of Cambridge, BCMC, CBBPC and
BC Mass under either of two theories: (a) because they engaged in
a deceptive "course of business" as prohibited under 15 U.S.C. §
1679b(a)(4); or (b) because the corporations served as the alter
egos of the Puccios such that they and the Puccios could be held
directly liable for Cambridge's actions by piercing the corporate
veil.
Id. at 271-72.
In March 2009, the district court entered its final
judgment against the Puccios, awarding damages to the plaintiffs,
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on behalf of the certified class, in the amount of $256,527,000.11
The court made its award under CROA's compensatory damages
provision which provides that "[a]ny person who fails to comply
with any provision of this subchapter with respect to any other
person shall be liable to such other person in an amount equal to
the sum of . . . [t]he greater of . . . (A) the amount of any
actual damage . . . or (B) any amount paid by the person to the
credit repair organization." 15 U.S.C. § 1679g(a). The court's
$256.5 million award represented the amount paid by the class
plaintiffs to the defendants through December 31, 2004.12
John and Richard Puccio now appeal from the district
court's grant of summary judgment. They contend, as a threshold
matter, that the district court erred in granting summary judgment
because Cambridge is not a credit repair organization within the
meaning of CROA. The Puccios further argue that even if Cambridge
is a credit repair organization under CROA, there were disputed
issues of fact that should have precluded the award of summary
11
The district court also entered judgment against the
corporate defendants. They have not appealed that judgment.
12
Although the certified class covered all individuals who
paid money to Puccio corporations "through to the present," the
plaintiffs agreed to limit the amount of damages to money paid
through December 31, 2004, an amount that was specifically admitted
by the defendants in their response to the plaintiffs' statement of
uncontested facts. The plaintiffs stipulated that all class
members, including those who paid money after December 31, 2004,
would be included in the distribution of funds to the class, but
that "it is clear that the amount of the overall judgment will be
so high already that not all of it will be collectable."
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judgment on the fraud claim under Section 1679b(a)(4) of CROA.
Their challenge to liability under Section 1679b(a)(3) is less
straightforward. Primarily, the Puccios insist that the district
court made no findings of liability under (a)(3). Secondarily,
they argue that even if the district court did find them liable
under (a)(3), the finding rests on the same flawed veil-piercing
analysis that the district court used in finding them personally
liable under (a)(4).13
III.
The plaintiffs' claims under CROA present several pure
questions of law, including issues of statutory interpretation.
Our review of the district court's conclusions on those issues is
de novo. Chiang v. Verizon New England, Inc., 595 F.3d 26, 34 (1st
Cir. 2010).
We also review de novo the district court's entry of
summary judgment. Cianbro Corp. v. George H. Dean, Inc., 596 F.3d
10, 14 (1st Cir. 2010). Summary judgment is appropriate when the
moving party demonstrates that there is no genuine issue of
material fact, and that it is entitled to judgment as a matter of
law. Fed. R. Civ. P. 56(c); Scottsdale Ins. Co. v. Torres,
561
F.3d 74, 77 (1st Cir. 2009). A material fact is one that would
affect the outcome of the suit, while a genuine issue is one for
13
The Puccios do not specifically contest the damages award.
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which the evidence would permit a reasonable jury to return a
verdict for the nonmoving party. Cianbro, 596 F.3d at 14.
Unlike a typical case in which a defendant moves for
summary judgment, in this case the plaintiffs prevailed at summary
judgment on claims for which they, as plaintiffs, would bear the
burden of proof at trial. The plaintiffs "cannot attain summary
judgment unless the evidence that [they] provide[] . . . is
conclusive." Torres Vargas, 149 F.3d at 35.
IV.
CROA was enacted in 1996 for two express purposes: first,
to "protect the public from unfair or deceptive advertising and
business practices by credit repair organizations," and second, to
"ensure that prospective buyers of the services of credit repair
organizations are provided with the information necessary to make
an informed decision regarding the purchase of such services." 15
U.S.C. § 1679(b). Congress passed CROA, which became effective on
April 1, 1997, in response to mounting evidence that unscrupulous
individuals were making their fortunes by leading consumers to
believe that they could repair a consumer's bad credit history.
See S. Rep. No. 103-209, at 7 (1993) ("Fraudulent companies that
lead consumers to believe that the companies can 'repair' bad
credit histories have bilked consumers of millions of dollars . .
. ."); H.R. Rep. No. 103-486, at 63 (1994) (Credit repair
"businesses, through advertisements and oral representations, lead
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consumers to believe that adverse information in their consumer
reports can be deleted or modified regardless of its accuracy.").
In an attempt to combat such practices, CROA requires organizations
that fall within its ambit to make certain disclosures prior to
doing business with members of the public and prohibits them and
persons connected with them from engaging in deceptive practices
injurious to the public. See 15 U.S.C. §§ 1679b-1679e.
This appeal concerns two CROA provisions that explicitly
apply to persons acting in connection with credit repair
organizations. Those provisions state:
No person may --
. . .
(3) make or use any untrue or misleading
representation of the services of the credit
repair organization; or
(4) engage, directly or indirectly, in any
act, practice, or course of business that
constitutes or results in the commission of,
or an attempt to commit, a fraud or deception
on any person in connection with the offer or
sale of the services of the credit repair
organization.
Id. As this text makes clear, in order to find liability under
either provision, a court must find that the services at issue are
those of a credit repair organization, as defined by CROA.
Accordingly, we turn first to this threshold definitional question.
A. Application of CROA to Cambridge
1. Language of the Act
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CROA applies to a category of businesses termed "credit
repair organizations." A "credit repair organization" is defined
by the act as:
any person who uses any instrumentality of
interstate commerce or the mails to sell,
provide, or perform (or represent that such
person can or will sell, provide, or perform)
any service, in return for the payment of
money or other valuable consideration, for the
express or implied purpose of--
(i) improving any consumer's credit
record, credit history, or credit rating; or
(ii) providing advice or assistance to
any consumer with regard to any activity or
service described in clause (i) . . .
15 U.S.C. § 1679a(3)(A). In interpreting CROA, as with any act of
Congress, "'our analysis begins with the language of the statute.'"
Zimmerman, 409 F.3d at 475 (quoting Hughes Aircraft Co. v.
Jacobson,
525 U.S. 432, 438 (1999)). The words Congress used to
define a credit repair organization must always be taken "in their
context and with a view to their place in the overall statutory
scheme." David v. Mich. Dep't of Treasury,
489 U.S. 803, 809
(1989). That overall scheme is a sweeping consumer protection act
explicitly intended to "protect the public from unfair or deceptive
advertising and business practices by credit repair organizations."
15 U.S.C. § 1679(b). Such consumer protection statutes are
construed "liberally in favor of consumers." Barnes v. Fleet Nat'l
Bank, N.A.,
370 F.3d 164, 171 (1st Cir. 2004).
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By its plain language, CROA applies to "credit repair
organizations." 15 U.S.C. § 1679a(3)(A). By focusing on the word
"repair" in the defined term, the defendants seek to draw a
distinction between purporting to repair or retroactively fix past
credit problems and purporting to improve credit in the future.
They argue that Congress intended CROA to apply to entities
performing the function of retroactive credit repair but not those
companies offering services aimed at improving clients' credit in
the future. In support of their theory, the defendants cite Hillis
v. Equifax Consumer Servs., Inc., 237 F.R.D. 491 (N.D. Ga. 2006),
in which the district court attempted to articulate such a
distinction:
the definition of a credit repair organization
is narrower than a cursory reading of the
statute would indicate. Specifically, when
the statute refers to services whose purpose
is to improve a consumer's 'credit record,
credit history, or credit rating,' these terms
[] refer to a consumer's historical credit
record. Congress did not intend for the
definition of a credit repair organization to
sweep in services that offer only prospective
credit advice to consumers or provide
information to consumers so that they can take
steps to improve their credit in the future.
Id. at 514.
The distinction drawn by the Hillis court, and embraced
by the defendants, is unsupportable.14 By its plain terms, CROA
14
The theory put forward by the district court in Hillis
appears to be an outlier. Cf. Helms v. Consumerinfo.com, Inc., 436
F. Supp. 2d 1220 (N.D. Ala. 2005); Polacsek v. Dedicated Consumer
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applies to organizations that provide, in exchange for
consideration, "any service" for the "express or implied purpose"
of improving a consumer's credit record, credit history, or credit
rating. 15 U.S.C. § 1679a(3)(A). The language of the Act does not
bind the concept of an improved credit record, credit history, or
credit rating to the literal alteration ("repair") of an historical
record, history, or rating. As the district court explained,
"[t]he ostensibly forward-looking orientation" of representations
about improving clients' credit "does not mitigate the obvious
message to debtors that [those] services might modify the effect of
their past credit history on their credit score." Zimmerman, 529
F. Supp. 2d at 275. Credit records are constantly changing based
on the ongoing performance of the consumer. By improving credit
behavior prospectively, a consumer aims to improve a pre-existing
credit record, credit history, and/or credit rating with a more
favorable record, history, or rating in the future. Thus, credit
counseling aimed at improving future creditworthy behavior is the
quintessential credit repair service.
2. The Facts of this Case
As detailed earlier in this opinion, the undisputed facts
are that in advertisements, informational materials, and employee
scripts, Cambridge repeatedly represented to consumers that its
debt management services would "restore your credit rating" and
Counseling, 413 F. Supp. 2d 539, 546 (D. Md. 2005).
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"improve your credit." Puccio company employees were trained to
tell customers that a Debt Plan "can only help your credit." At a
certain point, the employee scripts instructed that clients be
told, "Our program is designed to help you get out of debt and
improve your credit rating." Even more explicitly, the script
stated, "Over the course of the program, your credit rating will
improve." Cambridge's promotional materials made promises such as
"[w]hen you join our debt management program, we'll be able to help
you reestablish your credit." The Cambridge website contained a
feature which answered questions such as, "How Can I Rebuild My
Credit?" Their quarterly newsletter dispensed advice on the same
subject. The welcome package mailed to customers listed "an
improved credit profile" as among the "life benefits you receive by
using our program." BC Mass employees contacted clients' creditors
to try to negotiate "re-aging" of accounts, a process designed to
improve credit scores by relabeling delinquent accounts as current.
The Puccios cite the disclaimer in Cambridge's contract
stating that "[t]he CLIENT'S credit rating is outside of the scope
of this Agreement" as evidence that the company did not represent
that it would improve a client's credit rating. Apparently, the
Puccios believe that a company could represent repeatedly in
advertisements, on its website, and in its employee scripts, that
it would help improve clients' credit ratings, but escape liability
under CROA by inserting a disclaimer in its contract about the
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relevance of its services to the credit rating of its clients.
That is an implausible position which captures the duplicity of the
Puccios' enterprises. Cambridge repeatedly held itself out as a
company that would provide "advice and assistance" in order to
"improv[e] any consumer's credit record, credit history, or credit
rating." 15 U.S.C. § 1679a(3)(A)(i)-(ii). Those services are
squarely covered by CROA.
B. Application of CROA to the Puccios
The district court found the Puccios liable for violating
both Section 1679b(a)(3), which prohibits any person from "mak[ing]
or us[ing] any untrue or misleading representation of the services
of the credit repair organization," and Section 1679b(a)(4), which
prohibits, either through an act or a course of business, the
commission or attempted commission of "a fraud or deception" in
connection with the offer or sale of the services of a credit
repair organization. 15 U.S.C. § 1679b(a)(4). Because we affirm
the finding of liability under Section 1679b(a)(3), which suffices
to support the judgment, we do not reach the question of the
Puccios' liability under Section 1679b(a)(4).
1. The District Court's Finding of Liability Under
Section 1679b(a)(3)
In their opening brief on appeal, the Puccios offer no
challenge to their liability under Section 1679b(a)(3). In their
reply brief, they explain that curious omission, contending that
the district court did not actually find them liable under Section
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1679b(a)(3). That position is untenable. The district court
unambiguously held in section III.C.3.a of its opinion, entitled
"CRO Violations," that the "[d]efendants betrayed [p]laintiffs'
trust when, as was its policy for all [Cambridge] clients, it
transferred Plaintiffs' account to BC Mass, straightforwardly
violating § 1679b(a)(3)" by misleading consumers into thinking they
were doing business with a non-profit corporation, when, in fact,
their accounts were being wholly serviced by a for-profit.
Zimmerman, 529 F. Supp. 2d at 279. The court then made explicit in
section III.C.3.b, entitled "Non-CRO Violations," that "[t]hose
Defendants that are not themselves CROs within the meaning of CROA
- namely, John and Richard Puccio, . . . are still liable for the
above violations."
Id. at 280. That statement is an unmistakable
finding that all of the defendants, both the credit repair
organizations themselves, and John and Richard Puccio, violated
Section 1679b(a)(3).15
2. The District Court's Decision to Pierce the Corporate
Veil to Support Section 1679b(a)(3) Liability
The Puccios argue in the alternative that, if the
district court did find them personally liable under Section
1679b(a)(3), the district court's veil piercing analysis does not
15
The court made one exception for an enterprise called
Southfork. Zimmerman, 529 F. Supp. 2d at 280 n.27. The court
dismissed Southfork from the case after noting that the plaintiffs
had not presented any evidence suggesting that the company was
significantly involved in the Puccios' credit repair business.
Id.
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support that determination. Again, that barely developed argument
appears for the first time as a footnote in their reply brief.
Ordinarily, such an undeveloped argument, raised for the first time
in a footnote to the defendants' reply brief, would not suffice to
raise an argument, see Waste Mgmt. Holdings, Inc., v. Mowbray,
208
F.3d 288, 299 (1st Cir. 2000). Here, however, we see no meaningful
difference between the Puccios' fully developed challenge to the
veil piercing analysis of the district court under Section
1679b(a)(4) and the challenge to that analysis under Section
1679b(a)(3). We therefore choose to address the Section
1679b(a)(3) veil piercing argument of the Puccios on the merits.
To be sure, we tread carefully when determining whether
it is appropriate to put aside the basic tenet of corporate law
that "corporations - notwithstanding relationships between or among
them - ordinarily are regarded as separate and distinct entities,"
Scott v. NG U.S. 1, Inc., 881 N.E.2d 1125, 1131 (Mass. 2008), and
thereby to "allow a plaintiff to pierce the corporate veil of
limited liability." In re Ontos, Inc.,
478 F.3d 427, 432 (1st Cir.
2007). In Massachusetts, "the corporate veil will only be pierced
in rare situations." Birbara v. Locke,
99 F.3d 1233, 1239 (1st
Cir. 1996).16 Such situations do occur, however, and Massachusetts
16
We acknowledge the Puccios' suggestion that the veil-
piercing question, given its relevance to the federal cause of
action in this case under CROA, may be viewed as one of federal
common law. While "we arguably have discretion to use federal
law," Nisselson v. Lernout, 469 F.3d 143, 154 n.3 (1st Cir. 2006),
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has recognized that it is the "right and the duty of courts to look
beyond the corporate forms" when necessary "for the defeat of fraud
or wrong, or the remedying of injustice." Hanson v. Bradley, 10
N.E.2d 259, 264 (Mass. 1937) (quoted in
Scott, 881 N.E.2d at 1132).
Massachusetts has identified as relevant to the veil-
piercing analysis a set of twelve factors. They are: "(1) common
ownership; (2) pervasive control; (3) confused intermingling of
business assets; (4) thin capitalization; (5) nonobservance of
corporate formalities; (6) absence of corporate records; (7) no
payment of dividends; (8) insolvency at the time of the litigated
transaction; (9) siphoning away of corporation's funds by dominant
shareholder; (10) nonfunctioning of officers and directors; (11)
use of the corporation for transactions of the dominant
shareholders; and (12) use of the corporation in promoting fraud."17
Att'y Gen. v. M.C.K., Inc., 736 N.E.2d 373, 381 n.19 (Mass. 2000).
Looking to some of these factors, and to the guidance provided in
the seminal Massachusetts case, My Bread Baking Co. v. Cumberland
we choose to apply Massachusetts law.
Id. at 154 ("We look to
state law to ascertain when wrongful conduct should be imputed to
a corporation.").
17
That list is not exhaustive, nor does every factor have to
be present in every veil piercing case. The list, rather, is an
analytical tool used to "form an opinion whether the
[corporation's] over-all structure and operation misleads." Evans
v. Multicon Constr. Corp., 574 N.E.2d 395, 400 (Mass. App. Ct.
1991), review denied,
577 N.E.2d 309 (1991).
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Farms, Inc., 233 N.E.2d 748, 751-52 (Mass. 1968), we find ourselves
confronted with a textbook case for lifting the corporate veil.
The undisputed evidence shows that the Puccios owned and
had "pervasive control" over all of the entities involved in this
litigation, including Cambridge. John Puccio set the terms of
dealing among the Puccio companies, which functioned without clear
boundaries or separate corporate structures. Those dealings were
conducted without independent representatives to protect the
interests of the individual corporations.
Further, there was a total failure to “make clear which
corporation [was] taking action” or “to observe with care” the
corporate form. My Bread, 233 N.E.2d at 752. The Puccios did not
delineate between their businesses,18 channeling funds between them,
using employees interchangeably and applying funds from one entity
to pay the bills for another.19 Corporate formalities of even the
most basic nature were largely nonexistent, as when Cambridge
purchased BCC and CCC's nonexistent "intangible assets" for over
$14 million.
18
For example, as we outlined earlier, while John Puccio was
running Cambridge, that company paid $150,000 to another Puccio
enterprise, JRJ Associates, Inc., without receiving any
consideration for the payment.
19
As described above, at least one person who worked at
various times for Cambridge, CCC, and BC Mass, received the bank
statements and paid the bills of one of those companies while he
was not an employee of that company, but was instead on the payroll
of a different Puccio entity.
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The facts also show an obvious "element of dubious
manipulation and contrivance, finagling, such that corporate
identities are confused and third parties [could not] be quite
certain with what they [were] dealing.” Evans v. Multicon Constr.
Corp., 574 N.E.2d 395, 400 (Mass. App. Ct. 1991), review denied,
577 N.E.2d 309 (1991). When customers contracted with Cambridge,
their accounts became wholly serviced by BC Mass. The plaintiffs
were utterly "misled about which corporate entity - [Cambridge or
BC Mass] - was obligated to them or was dealing with them."
Birbara, 99 F.3d at 1239 (refusing to pierce the corporate veil in
the absence of any confusion about which corporate entity was in
dealings with the plaintiffs). The Puccios also siphoned money
from corporate accounts to pay for personal expenses such as adult
entertainment and costs associated with a yacht.
As the district court rightly emphasized, the money that
was funneled from Cambridge into other Puccio entities and
ultimately to the Puccios themselves cannot be reached by the
settlement with Cambridge or the judgment against the other
corporations. In order to obtain full relief, the plaintiffs must
be able to reach the Puccios, who were the lead players in the
scheme being carried out by their network of corporations.
That logic is at the very heart of the alter ego
doctrine. See 1 W.M. Fletcher, Cyclopedia of the Law of
Corporations § 41.10 (2010) ("One rationale behind the theory [of
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alter ego liability] is that if the shareholders or the
corporations themselves disregard the proper formalities of a
corporation, then the law will do likewise as necessary to protect
individual and corporate creditors."). The corporate form should
not bar the plaintiffs from seeking the full relief to which they
are entitled when the defendants themselves treated Cambridge and
their other companies as mere shells, ignoring financial, legal and
practical formalities in furtherance of their own money-making
enterprise. In short, we agree with the trenchant assessment of
the district court:
Defendants served as alter egos of the Puccios
and thus may be held directly liable for
[Cambridge's] actions by piercing
[Cambridge's] corporate veil. Since funds
were funneled out of [Cambridge] to other
entities in the Puccios' network and
ultimately to the Puccios themselves, the
settlement with [Cambridge] could not provide
the Zimmermans with full relief and they must
now seek their remedy from these other
defendants. The corporate form should not
serve as an obstacle to that relief where, as
here, it was a mere shell, ignored by the
Puccios in their everyday business dealings.
Zimmerman, 529 F. Supp. 2d at 271-72.20
V.
When Cambridge held itself out as an organization that
could help consumers "rebuild," "reestablish" and "restore" their
credit, it operated as a "credit repair organization" within the
20
The Puccios' only "merits" challenge to their liability
under Section 1679b(a)(3) was their veil piercing challenge.
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meaning of CROA. Having made that threshold determination
correctly, the district court pierced the corporate veil to find
that the Puccios were personally liable under Section 1679b(a)(3)
of CROA for a misrepresentation by Cambridge that it offered credit
repair services as a non-profit entity. That determination was
also correct. We therefore affirm the district court's grant of
summary judgment to the plaintiffs based on the liability of the
Puccios for violations of 15 U.S.C. § 1679b(a)(3).
So ordered.
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Appendix
Acronym Name Function Location Status
BCC Brighton Credit Corporation Credit New For-
Counseling York profit
BC Mass* Brighton Credit Corp. of Massachusetts Back Office Mass For-
Brighton Debt Management Services, Inc. Profit
First Consumers
BCMC Brighton Credit Management Corporation Credit Florida For-
Counseling profit
Cambridge Cambridge Credit Counseling Credit Mass Non-
** Corporation Counseling Profit
CBBPC Cambridge/Brighton Budget Planning Credit New For-
Corporation Counseling York profit
CCC Cambridge Credit Corporation Credit New For-
Counseling York profit
Debt Relief Clearinghouse Ltd. Marketing
Cypress Advertising and Promotions, Inc. Advertising
* For-profit company providing the services offered by Cambridge.
** Company responsible for misleading representations that its clients were contracting for the
services of a not-for-profit.
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