Antitrust Law Daily Wrap Up, CONSUMER PROTECTION—M.D. Fla.: FTC contempt action against telemarketers unsealed, (Aug 1, 2013)

By Peter Reap, J.D., LL.M.

The federal district court in Tampa has unsealed an FTC action brought against telemarketers for allegedly violating a 2008 permanent injunction order by deceptively soliciting consumers and taking money from their bank accounts without consent. The defendants had moved for the FTC’s Motion for an Order to Show Cause and supporting exhibits to remain sealed until an evidentiary hearing scheduled for September 16, 2013. However, the defendants failed to show good cause for the continued sealing (FTC. FTN Promotions, Inc., July 31, 2013, Wilson, T.)

In a press release issued today, the FTC said that it is seeking a contempt order in federal court against the defendants who were previously involved in a massive, Florida-based marketing scheme, for engaging in some of the same deceptive tactics that led to the FTC’s prior charges against them. According to the FTC, in the latest scheme, the defendant have targeted recent loan applicants, representing that the defendants would provide the consumers with cash advances or loans, or general lines of credit. Instead of providing these services, the defendants allegedly debited consumers’ accounts for membership in a continuity program.

Background. On May 22, 2013, the FTC filed a Motion for an Order to Show Cause seeking relief for alleged violations of the court’s permanent injunction by defendants Brian Wolf, Roy Eliasson, and Membership Services, LLC. The FTC then moved for and obtained a temporary 10-day seal of that motion and the supporting exhibits to allow third parties and the defendants to seek a protective order before the materials were made public. Subsequently, the defendants filed the instant motion requesting a protective order, moving to seal the FTC’s entire Show Cause Motion and most of the attached exhibits.

Analysis. The common law right of access to judicial proceedings establishes a general presumption that criminal and civil actions be conducted publicly and includes the right to inspect and copy public records and documents, the court explained. The right of access can be overcome by a showing of good cause, which requires balancing the public’s right of access with a party’s competing interest in maintaining confidentiality. A court considered a number of factors in such a balancing, including whether allowing access would impair court functions or harm legitimate privacy interests, the degree of and likelihood of injury if made public, and the availability of a less onerous alternative to sealing the documents.

The interest of the public in disclosure outweighed any interest of the defendants in continued sealing, the court determined.

The defendants based their request on grounds that disclosure of the Show Cause Motion would severely affect their business and that the exhibits contain trade secrets and confidential information. However, the defendants supported their claims of trade secrets and confidential information with only conclusory assertions, according to the court.

The defendants also argued that public disclosure would precipitate the closure of defendant Membership Services, LLC, based solely on unproven and unsubstantiated governmental allegations. This concern was exaggerated, the court decided. It seemed very unlikely that people seeing news of the allegations would decide not to do business with the company or terminate their relationship and ask for a refund. Further, such a speculated stampede on the defendants’ business would have to occur quickly since the evidentiary hearing was scheduled in less than seven weeks.

In addition, the FTC cited solid authority stating that the fact that disclosure of information would harm a company’s reputation is not a basis for sealing that information. Indeed, negative information about a company would seemingly increase the public’s need to know, rather than support sealing, the court reasoned. Moreover, the defendants were entitled to formulate a response, if they so chose.

The defendants failed to overcome the presumption that judicial records should be made available to the public, the court held. This conclusion did not take into account the idea that, if as the FTC has alleged, the defendants are engaged in deceptive practices, and the public’s right to be informed about the defendants’ activities is substantially increased. Particularly in light of this factor, the balancing of the parties’ interests clearly warranted unsealing of the materials.

The case is No. 8:07-CV-1279-T-30TGW.

Attorneys: Joshua Samuel Millard for FTC. Christopher A. Cole (Manatt, Phelps & Phillips, LLP) for FTN Promotions, Inc.

Companies: FTN Promotions, Inc.

Cases: ConsumerProtection FloridaNews FederalTradeCommissionNews