1:24-cv-00040
W.D.N.Y.Mar 25, 2025Background
- The Consumer Financial Protection Bureau and others brought suit against StratFS, LLC (formerly Strategic Financial Solutions, LLC) and related entities (including Lit Def Strategies, LLC and Jason Blust) alleging unlawful advance fees for consumer debt-relief services.
- The court previously entered a Temporary Restraining Order (TRO) and later a preliminary injunction (PI), freezing assets and appointing a receiver to control defendants’ business operations.
- Lit Def and Blust represented they ceased operations after the TRO, but evidence revealed that Lit Def continued operating, including through another entity, Fidelis Legal Support Services, LLC.
- Declarations under penalty of perjury from Blust, Cameron Christo (Fidelis’s putative owner), and Michelle Gallagher (manager) denied Blust’s control over Fidelis or connections between Fidelis and Lit Def.
- The receiver unearthed extensive internal communications showing Blust’s ongoing control over both entities, including personnel moves, compensation, and concealment efforts; key witnesses invoked the Fifth Amendment at the evidentiary hearing.
- The magistrate judge found the defendant’s representations false, relied on adverse inferences, and recommended civil contempt sanctions and expansion of the receivership to include Fidelis.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Did Blust & Lit Def violate the TRO by continuing operations and concealing Fidelis? | Blust and Lit Def operated post-TRO and hid Fidelis as successor to Lit Def. | Lit Def ceased operations; Fidelis is independent, with no Blust control. | Yes; Blust and Lit Def knowingly and willfully violated the TRO directly and via Fidelis. |
| Should Fidelis be deemed a receivership defendant and included in the receivership estate? | Fidelis is a successor/assign of Lit Def and under Blust’s control. | Fidelis is independent, not controlled by Blust or successor to Lit Def. | Yes; Fidelis is successor to/assign of Lit Def and controlled by Blust, so is included. |
| Are adverse inferences appropriate due to Fifth Amendment invocations? | Adverse inferences are proper with corroborating evidence of misconduct. | (No specific counter; defendants relied on declarations and silence.) | Yes; adverse inferences were drawn, given corroborative evidence of misconduct. |
| Are civil contempt sanctions warranted? | Blust and Lit Def’s violations caused injury, justifying fines/fees. | No ongoing contempt; receiver’s expenses after operations ceased not covered. | Yes; ordered payment of receiver’s attorney’s fees/costs but not ongoing daily fines. |
Key Cases Cited
- Baxter v. Palmigiano, 425 U.S. 308 (1976) (Permits adverse inferences against parties in civil cases who invoke the Fifth Amendment.)
- Louis Vuitton Malletier S.A. v. LY USA, Inc., 676 F.3d 83 (2d Cir. 2012) (Affirms courts’ authority to use adverse inferences from Fifth Amendment invocations in civil matters.)
- CBS Broad. Inc. v. FilmOn.com, Inc., 814 F.3d 91 (2d Cir. 2016) (States requirements for finding civil contempt for violating a clear and unambiguous court order.)
- Manhattan Indus., Inc. v. Sweater Bee by Banff, Ltd., 885 F.2d 1 (2d Cir. 1989) (Describes remedy principles for civil contempt—including compensation and coercion.)
- United States v. Cornielle, 171 F.3d 748 (2d Cir. 1999) (Highlights seriousness of perjury in judicial proceedings.)