On September 15, the U.S. District Court for the Western District of New York denied multiple motions to dismiss filed by several defendants and relief defendants in an enforcement action brought by the CFPB and seven state attorneys general (previously covered by InfoBytes here). The second amended complaint alleges that the defendants operated a debt-relief scheme that collected over $84 million in illegal advance fees from financially distressed consumers, in violation of the Telemarketing Sales Rule (TSR), New York Executive Law, New York General Business Law, and Wisconsin law.

The court overruled all objections to the magistrate judge’s reports and recommendations (previously covered by InfoBytes here) and adopted them in their entirety. Among other things, the court rejected the defendants’ argument that the TSR’s substantial assistance provision is invalid as applied to abusive telemarketing practices. The moving defendants — affiliated litigation support companies, a consulting firm, and individual attorneys — argued that their roles were confined to back-end services, but the court held that the TSR “does not require the provision of ‘front-end’ services, or direct involvement in the alleged TSR violation,” and that the complaint adequately alleged “substantial assistance.” The court declined to import a stricter aiding-and-abetting standard, finding the threshold for substantial assistance under the TSR to be low.

The court also found the complaint sufficiently alleged that the defendants knew or consciously avoided knowing of the TSR violations, noting that the rule requires only factual knowledge of the underlying conduct — not legal knowledge that the conduct was unlawful — citing the 2nd Circuit’s ruling affirming the preliminary injunction in this case. The claims under New York and Wisconsin law were also found to be sufficiently pleaded. The court acknowledged that the case is only at the pleading stage and that discovery may allow the defendants to renew their arguments on summary judgment.