Antitrust Law Daily Wrap Up, CONSUMER PROTECTION—6th Cir.: FTC win upheld in case against debt relief marketers, (Sep 9, 2014)

By Jeffrey May, J.D.

Marketers of debt-related services were properly found to have violated the FTC Act, the Telemarketing Sales Rule (TSR), and the Mortgage Assistance Relief Services Rule (MARS Rule) in promoting their services to debt-burdened individuals across the United States, the U.S. Court of Appeals in Cincinnati has ruled. Summary judgment in favor of the FTC was affirmed (FTC v. E.M.A. Nationwide, Inc., September 8, 2014, Clay, E.).

In 2011, the FTC, with the assistance of Canadian and U.S. agencies, began an investigation into E.M.A. Nationwide, Inc., related U.S. and Canadian corporations, and company officers. The investigation led the FTC to file a complaint in 2012. The defendants unsuccessfully attempted to stay the FTC suit based on ongoing criminal investigations. When the FTC moved for summary judgment in 2013, the court also denied the defendants' motion for extension of the deadline for filing the response. Subsequently, the defendants failed to respond in opposition to the motion for summary judgment. On August 26, 2013, the district court granted the FTC’s motion for summary judgment. The defendants were found to have violated the FTC Act, the TSR, and the MARS Rule, and were held jointly and severally liable for their acts. The court issued a permanent injunction and ordered the defendants to jointly pay restitution in the amount of $5,706,135.48 to injured consumers.

Because the defendants did not oppose the motion for summary judgment, some of their arguments that had not been considered by the district court were waived. However, the appellate court “review[ed] the district court’s articulated analysis to ensure that it did not overlook any genuine dispute of material fact.”

The defendants contended summary judgment should not have been granted because the overall net impression of the challenged representations was an issue of fact that had to be decided by a jury. They argued that the representations were not likely to mislead or improperly induce consumers to purchase their services in violation of the FTC Act. However, the appellate court explained, this issue could be decided on summary judgment. Moreover, the evidence in the record that the defendants’ messages actually deceived consumers was highly probative of the representations' deceptiveness. The defendants pointed to clearer descriptions of their services and disclaimers in their written materials, but this information was “buried” in written documents received by consumers only after they were misled into purchasing the services.

Telemarketing sales rule. Sufficient evidence in the record established that the defendants’ telemarketers made material misrepresentations that led consumers to purchase their services, the appellate court also decided. The net impression of the telemarketers’ representations to consumers was deceptive and likely to mislead consumers acting reasonably under the circumstances. The FTC had alleged that the defendants violated the TSR by (1) misrepresenting the total cost of their services; (2) misrepresenting material aspects of their services; (3) requesting and receiving fees before negotiating or settling the terms of consumers’ debts; and (4) calling numbers on the National Do Not Call Registry. The FTC had offered evidence that the defendants never subscribed to the national Do Not Call Registry and did not pay the necessary fees to obtain consumer telephone numbers from the registry. In addition, there was evidence that the defendants’ telemarketers called consumers whose numbers were listed on the registry.

MARS Rule. There was undisputed evidence in the record that the defendants' verbal representations, as well as their written documents, violated the MARS Rule, which prohibits entities offering mortgage relief services from making certain representations and engaging in certain deceptive practice, according to the appellate court. For instance, the defendants improperly instructed customers not to contact or communicate with their lenders/servicers. Further, the record contained undisputed evidence that the defendants violated the rule by misrepresenting the amount of relief consumers could obtain from their services and requesting fees from consumers without first obtaining agreements from their lenders.

Individual liability. The district court did not err in imposing joint and several liability and holding two of the individual defendants who identified themselves as president and vice president of each of the corporate entities liable for the acts of the corporate defendants, the appellate court decided. The two defendants held individually liable had, or should have had, knowledge regarding the defendant corporations’ activities and had the authority to control their deceptive acts. Moreover, "each of the corporate and individual defendants made up a messy maze of interrelated business entities." Thus, it was appropriate to apply the common enterprise theory of liability, to disregard "corporateness," and to hold the defendants jointly and severally liable for their acts.

Stay of proceedings. The appellate court also ruled that it was not an abuse of discretion for the lower court to deny the defendants’ motion for a stay of proceedings in light of the criminal investigations. District courts generally balance six factors when determining whether a stay of civil proceedings is appropriate in the face of a possible criminal probe: (1) the extent to which the issues in the criminal case overlap with those presented in the civil case; (2) the status of the case, including whether the defendants have been indicted; (3) the private interests of the plaintiffs in proceeding expeditiously weighed against the prejudice to plaintiffs caused by the delay; (4) the private interests of and burden on the defendants; (5) the interests of the courts; and (6) the public interest. While the third and fourth factor regarding the plaintiff’s and the defendants’ interests clearly tipped in the parties’ individual directions, the remaining factors did not weigh in favor of either of the parties. Thus, it could not be said that the district court abused its discretion. The appellate court also ruled that the district court properly denied the defendants’ request for additional discovery.

The case is No. 13-4169.

Attorneys: David L. Sieradzki for FTC. Jennifer A. Lesny Fleming (Kaufman & Company, LLC) for E.M.A. Nationwide, Inc.

Companies: E.M.A. Nationwide, Inc.

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