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NEW YORK BY VACCO v. FINANCIAL SERVS. NETWORK

UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF NEW YORK


June 27, 1996

THE PEOPLE OF THE STATE OF NEW YORK, by DENNIS C. VACCO, Attorney General, and THE PEOPLE OF THE STATE OF NORTH CAROLINA, by MICHAEL F. EASLEY, Attorney General, Plaintiffs,
v.
FINANCIAL SERVICES NETWORK, USA, d/b/a RESOURCE CARD SERVICES, FINANCIAL SERVICES CAPITAL GROUP, PAUL NAVESTAD a/k/a PAUL R. NAVESTAD, ERIC NAVESTAD and VINCENT JOSEPH SANSALONE, Individually and as officers of the above corporations, Defendants.

The opinion of the court was delivered by: TELESCA

DECISION and ORDER

 INTRODUCTION

 The States of New York and North Carolina commenced this action pursuant to 15 U.S.C. § 6101 et seq. seeking both restitution and a preliminary injunction claiming that defendants engage in deceptive, fraudulent and illegal practices by their promotion of advance fee credit services and debt consolidation services in violation of the Federal Trade Commission's Telemarketing Sales Rule, 16 C.F.R. Part 310, New York Executive Law § 63(12), New York General Business Law §§ 349 and 350, New York General Business Law Art. 28-B, New York General Obligations Law § 5-531, North Carolina General Statute §§ 66-106 et seq., North Carolina General Statute § 1-424 and North Carolina General Statute § 75-1.1. Plaintiffs moved ex parte for a temporary restraining order and for an order to show cause for a preliminary injunction and the appointment of a receiver.

 This Court granted a temporary restraining order ("TRO") pending a hearing on plaintiffs' request for a preliminary injunction. The TRO (1) prohibited defendants from violating 16 C.F.R. §§ 310.4(a)(4), 310.3(a)(1), 310.3(a)(2) and 310.3(a)(4), New York General Business Law §§ 349, 350 and 456, New York Executive Law § 63(12), North Carolina General Statutes §§ 14-424 and 75-1.1 and North Carolina Loan Broker Act, N.C.G.S. § 66-106 et seq.; (2) froze defendants' assets; and (3) directed defendants to allow plaintiffs access to defendants' business premises, to provide plaintiffs with a completed financial statement, and to identify all bank accounts.

 Defendants Financial Services Network, USA, d/b/a Resource Card Services ("FSN"), Paul Navestad, a/k/a Paul R. Navestad and Eric Navestad have been served and have submitted papers in opposition to the request for a preliminary injunction. Defendants Financial Services Capital Group ("FSCG") and Vincent Joseph Sansalone ("Sansalone") have not been served. On June 25, 1996, this Court heard oral argument on the motion. Sheldon Lustigman, Esq. appeared in opposition on behalf of FSN, Paul Navestad and Eric Navestad and Marilyn O'Mara, Esq., Assistant Attorney General for the State of New York and Philip Lehman, Esq., Assistant Attorney General for the State of North Carolina, appeared on behalf of plaintiffs.

 In support of their motion for a preliminary injunction, plaintiffs submitted (1) an affidavit from an investigator with the Federal Trade Commission together with exhibits which are copies of FSN advertisements and a transcript of the recording consumers hear upon calling FSN's "800" telephone number; (2) affidavits from investigators with the New York and North Carolina State Attorney General's Offices with attached copies of telephone records from FSN; (3) 27 affidavits or declarations from dissatisfied customers of FSN with accompanying copies of FSN advertisements; and (4) affidavits testifying to the existence of letters of complaint or inquiry from more than half of the states of the United States and administrative Cease and Desist Orders issued against FSN in the states of Idaho, Nevada, Indiana and North Dakota. In opposition to the motion, defendants have submitted affidavits from defense counsel and defendant Paul Navestad with attached exhibits which include: (1) a copy of a letter with enclosed FSN promotional materials which FSN sent to the New York Banking Department which sought an opinion regarding whether FSN's investment program required licensing by the New York state; (2) letter from the New York State Banking Department responding to FSN's letter; (3) letters written by FSN in response to complaints raised by various states; (4) declarations or affidavits and accompanying documentation from four satisfied FSN customers along with nine letters from satisfied customers; (5) documentation evidencing resolution of complaints from FSN customers and refunds to FSN dissatisfied customers; and (6) cease and desist letter from FSN to defendant Sansalone.

 Having considered the evidence and arguments of counsel, and for the reasons that follow, plaintiffs' order to show cause for a preliminary injunction is granted in part and denied in part and plaintiffs' motion for the appointment of a receiver is denied at this time.

 BACKGROUND

 Plaintiffs allege that since 1988, defendants have engaged in the business of telemarketing advance fee credit services to consumers throughout the United States. Specifically, they claim that defendants mailed advertisements to consumers representing that they can provide a pre-approved $ 30,000 line of credit and debt consolidation services for an advance fee, when, in fact, consumers receive nothing more than a packet of information consisting of consumer forms, booklets and pamphlets on business financing, obtaining credit and earning investment income.

 Defendants' direct mailings to consumers which advertise FSN's services consists of the following:

 IMMEDIATE ACTION REQUIRED

 CONGRATULATIONS! YOU ARE APPROVED FOR FINANCIAL SERVICES NETWORK'S

 RESOURCE CARD

 PRE-APPROVED

 $ 30,000 CREDIT LINE

 (Complaint Ex. B)

 CONGRATULATIONS! YOU ARE

 APPROVED FOR FINANCIAL

 SERVICES NETWORK'S RESOURCE CARD

 PRE-APPROVED

 $ 30,000.00 CREDIT LINE

 ANNUAL FEE: $ 48.00 (Complaint Ex. C] URGENT Card Provider: Financial Services Network Annual Fee: $ 48 Telephone Number: 1-800-210-4323 Account Type: Resource Card Member Status: Pending Account Status: Pre-Approved Credit Line Amount: $ 30,000.00 Approval Expires: 03/21/96

19960627

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