Antitrust Law Daily Wrap Up, CONSUMER PROTECTION—DAriz: Jury Trial Denied in FTC Action Against Credit Card Interest Rate Telemarketing Operation, (Feb 11, 2013)

By Tobias J. Gillett, J.D., LLM.

A telemarketing operation allegedly offering false credit card interest rate reduction services is not entitled to a jury trial on the FTC’s claims that it had violated the FTC Act and the Telemarketing Fraud and Abuse Act because the FTC sought equitable relief and not a legal remedy, the federal district court in Phoenix has ruled (FTC v. ELH Consulting, LLC, February 6, 2013, Martone, F.).

On October 22, 2012, the FTC filed a complaint against ELH Consulting, LLC and a variety of affiliated entities and individuals (“ELH”) asserting that ELH had violated the FTC Act and the Telemarketing Fraud and Abuse Act. The FTC’s complaint alleged that the defendants had engaged in an operation that placed robocalls to consumers offering to reduce their credit card interest rates in return for an upfront fee, but then failed to perform any services after receiving the fee. The court granted the FTC’s request for a temporary restraining order against the operation.

The FTC argued that their complaint sought only equitable relief, and therefore the defendants were not entitled to a jury trial. The court explained that under Federal Rule of Civil Procedure 38, a party has “[t]he right of trial by jury as declared by the Seventh Amendment to the Constitution—or as provided by federal statute.” Under the Seventh Amendment, parties are entitled to jury trials for legal claims, but not equitable claims.

Although the defendants conceded that they were not entitled to a jury trial on the FTC’s equitable claims, they argued that, since the FTC sought to recover funds that had been commingled with the defendants’ general assets, the FTC’s claims were for legal restitution, and therefore they were entitled to a jury trial. The court explained that the U.S. Supreme Court, in its 2002 decision in Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204, had found that an imposition of personal liability for a contractual obligation constituted legal relief, while an action to “restore to the plaintiff particular funds or property in the defendant’s possession” constituted equitable relief.

Here, since the FTC brought its claims “based on the court’s equitable powers to redress injury to consumers resulting from Defendants’ violations of the FTC Act and the Telemarketing Act,” rather than on a contractual obligation, the FTC sought equitable relief, not legal restitution.

The defendants also argued that the FTC sought legal restitution through its request for “refund of monies paid.” However, the court concluded that, since the FTC sought “disgorgement of improper profits,” rather than damages, the FTC sought equitable relief.

In addition, the court declined to impanel an advisory jury in the case, concluding that it “would add needless complexity with no attendant benefit.”

The case is No. CV 12-02246-PHX-FJM.

Attorneys: Eleanor Durham for FTC. Kurt A. Goering for ELH Consulting LLC.

Companies: ELH Consulting, LLC

Cases: ConsumerProtection FederalTradeCommissionNews ArizonaNews