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Consumer Financial Protection Bureau v. Klopp

United States District Court, D. Maryland

May 21, 2018

CONSUMER FINANCIAL PROTECTION BUREAU, et al. Plaintiffs,
v.
GARY KLOPP, et al. Defendants.

          MEMORANDUM ORDER

          RICHARD D. BENNETT, UNITED STATES DISTRICT JUDGE

         Plaintiffs, the Consumer Financial Protection Bureau and the Consumer Protection Division of the Maryland Attorney General's Office (together, “Plaintiffs” or “Regulators”), filed this action against Mr. Klopp and other individuals and entities to address the Defendants' alleged participation in a kickback scheme in violation of federal and state consumer protection laws. (ECF No. 1.) On November 13, 2015, Plaintiffs and Defendants Gary Klopp, All County Settlements, LLC, and Carroll Abstracts, Inc., submitted a Stipulated Final Judgment and Order (ECF No. 51), which this Court approved and entered on November 16, 2015. (ECF No. 53.) On August 16, 2017, this Court conducted a hearing and held Mr. Klopp in civil contempt for violating the Stipulated Final Judgment and Order. (See ECF No. 59.)

         Pending now are Plaintiffs' Motion for Sanctions (ECF No. 67) and Defendant Klopp's Motion in Limine to Preclude Use of Deposition of Stacey Kearney (ECF No. 69). On May 16, 2018, this Court conducted a hearing, and for the reasons set forth on the record and for the reasons set forth below, Defendant Klopp's Motion in Limine (ECF No. 69) is GRANTED, [1] and Plaintiffs' Motion for Sanctions (ECF No. 67) is GRANTED IN PART and DENIED IN PART. More specifically:

         1. Mr. Klopp SHALL PAY $526, 796.36 to the Plaintiffs.

a. Any supersedeas bond to stay the enforcement of this monetary judgment must amount to $632, 655.63 and be posted within 14 days of any notice of appeal.

         2. Mr. Klopp is completely BARRED from the mortgage industry for a period of TWO YEARS, starting TEN DAYS after the entry of this Order.

a. He may collect his base salary through the date of the sanctions hearing, May 16, 2018, but may not receive any compensation from Peoples Bank for work after that date.
b. This Order does not prohibit payments or reimbursements related to the requisite transfer of any assets or other interests in Peoples Bank.

         3. Mr. Klopp SHALL POST this Sanctions Order to the Nationwide Mortgage Licensing System and Registry website within 60 days of this Order.

         BACKGROUND

         On April 29, 2015, Plaintiffs filed a Complaint against Mr. Klopp and other individuals and entities alleging violations of the Real Estate Settlement Procedures Act (“RESPA”), 12 U.S.C. § 2607(a), the Consumer Financial Protection Act of 2010, 12 U.S.C. § 5536(a)(1)(A), and the Maryland Consumer Protection Act, Md. Code Ann., Com. Law §§ 13-101 through 13-501 (2013 Repl. Vol.). (ECF No. 1.) On November 13, 2015, Plaintiffs and Defendants Gary Klopp, All County Settlements, LLC, and Carroll Abstracts, Inc., submitted a Stipulated Final Judgment and Order (ECF No. 51), which this Court approved and entered on November 16, 2015. (ECF No. 53, hereinafter “Final Judgment Order.”)

         While these three Defendants neither admit nor deny the allegations (id. at ¶ 3), the Final Judgment Order, in relevant part, has imposed the following conduct requirements.

8. Pursuant to 12 U.S.C. § 5565(a)(2)(G), Defendants are limited from participation in the Mortgage Industry for two years from the Effective Date as follows:
a. Defendants are prohibited from contacting, soliciting, or otherwise dealing with consumer borrowers or loan applicants in any capacity with regard to any mortgage business; and
b. Defendants are prohibited from contacting, soliciting, or otherwise dealing with any third party businesses engaged in offering any settlement service.
c. These limitations shall not prohibit Defendant Klopp from acting solely as a personnel or human-resources manager for a mortgage business operated by an FDIC insured banking institution, including providing personnel or human-resources-related management and administrative functions with regard to National Mortgage Licensing System-registered loan originators, as that term is defined in Md. Fin. Inst. Code Ann. §11-601.
9. Within 60 days of the Effective Date, Defendant Klopp must disclose this action and Order to NMLSR and, in accordance with NMLSR procedure, upload an electronic copy of this Order.

(ECF No. 53 at 5-6.) The Final Judgment Order also includes various reporting requirements related to personal contact information and business activities. (Id. at ¶¶ 15-17.)

         On June 7, 2017, the Plaintiffs filed an Application for an Order to Show Cause Why Gary Klopp Should Not Be Held in Contempt. (ECF No. 54.) This Court issued the requested Show Cause Order on July 18, 2017. (ECF No. 55.) On August 16, 2017, the parties offered testimony and documentary evidence regarding Mr. Klopp's compliance - or lack thereof - with the reporting requirements and the conduct prohibitions. Mr. Klopp testified that he has been working for Peoples Bank & Trust Company (“Peoples Bank”) and that his management contract and compensation plan have not changed since the entry of the Final Judgment Order. He receives a small salary[2] for his duties as an HR manager plus additional compensation based on the profitability of his branches. At the August 16, 2017 hearing, Stacey Kearney, an employee at the Peoples Bank branch in Owings Mills, Maryland, testified that Mr. Klopp had ultimate control of that branch, which employed over 100 people. The evidence at the hearing also established that Mr. Klopp has owned and operated a Peoples Bank branch in California. Both branches focus entirely on brokering mortgages.

         At the conclusion of the contempt hearing on August 16, 2017, this Court held Mr. Klopp in civil contempt, for the reasons stated on the record, for violating numerous provisions of the Final Judgment and Order. (ECF No. 59.) Specifically, it held that Mr. Klopp violated Paragraph 8 of the Final Judgment and Order by continuing to own and operate Peoples Bank branches in Owings Mills, Maryland and in California and by engaging in all aspects of running his mortgage businesses. In this regard, this Court specifically stated, “It is undisputed that Mr. Klopp has continued to own and operate a mortgage business; in my opinion, in a clear violation of this Court's [O]rder.” This Court also held that Klopp violated Paragraph 9 by failing to upload a copy of the Final Judgment and Order to the Nationwide Mortgage Licensing System and Registry (“NMLSR”), and that he violated the reporting requirements (see ECF No. 53 at ¶¶15-17) by failing to inform the Plaintiffs of his address in California and his ownership and control of a Peoples Bank branch in California.[3]

         The Court then held sub curia the issue of sanctions. After jointly seeking an extension of time (ECF Nos. 63-64), the parties submitted their sanctions briefs (ECF Nos. 67-71). The Regulators seek (1) disgorgement of all of Klopp's income from People Bank from the date of Judgment until the date of compliance, whenever that appears to be; and (2) a lifetime ban from the industry, without an exception for human resources (“HR”) work. Mr. Klopp argues that these proposed sanctions are inappropriately punitive.

         These initial briefs, however, did not fully address the Court's concerns, so this Court requested brief status reports on Mr. Klopp's efforts to comply with this ...


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