Antitrust Law Daily Wrap Up, CONSUMER PROTECTION—MDFla: Evidence for Upcoming Trial of FTC’s Claims Against Payday Loan Referral Business Takes Shape, (Nov 15, 2012)

By E. Darius Sturmer, J.D.

An FTC enforcement action against an online payday loan referral business, a membership discount club business, their principal, and several other affiliated entities and individuals has gotten several steps closer to its scheduled November 27 trial in Florida, after the federal district court in Orlando ruled on a series of motions pertaining to the admissibility of evidence the parties intend to offer at that trial (FTC v. Direct Benefits Group, LLC, November 14, 2012, Antoon, J.).

In the suit, the FTC alleges that the defendants violated the FTC Act by engaging in unfair billing practices and unlawfully failing to disclose material information on websites that they operated. The litigation was cleared for trial upon a determination by the court on November 7 that the existence of numerous factual disputes precluded a granting of summary judgment in the Commission’s favor.

Admissibility of Consumer Declarations, Complaints

The FTC’s intended use of consumer declarations at trial in lieu of live testimony was permissible, the court decided. Although the evidence constituted hearsay, it was nonetheless admissible under Federal Rule of Evidence 807 as an exception to the prohibition against hearsay. The declarations were offered merely to corroborate the testimony of consumers who would testify at trial and of the defendants’ office manager, who was in charge of handling consume complaints. “In light of the estimated 25,000 complaints that were made regarding the defendants’ practices, it was not reasonable to expect that the Commission would call all—or even a significant percentage—of the consumers who complained,” the court said, noting that use of the materials would also save expense and delay.

Likewise, the FTC could admit into evidence complaints filed by consumers with the Better Business Bureau and state agencies, as well as a declaration by the president of a business with a name similar to that of one of the defendants, who had received apparently misaddressed complaints about the defendants from their customers. The complaints had circumstantial guarantees of reliability, the court found. While they were not made under oath, the complaints were made independently by unrelated consumers, without solicitation. The defendants made no assertion that the complaints were fabricated or based on faulty perception, or that any of the consumers who made the complaints would give live testimony that would differ from the contents of the complaints.

Exclusion of Witness Testimony

The defendants were not entitled to an order precluding an FTC investigator from offering expert testimony at trial, the court also held. Noting the FTC’s contention that the investigator’s testimony was intended to include lay opinion, not expert testimony, the court concluded that the Commission’s suggested areas of inquiry of the investigator did not require that he be qualified as an expert witness.

Affirmative Defenses

The defendants were allowed to raise two of the three issues they identified as affirmative defenses: satisfied customers and independent causes. According to the defendants, they wished to offer this evidence for the limited purpose of establishing that their computer instructions were clear and that they did not engage in unfair conduct. Regardless of whether either of these constituted valid affirmative defenses, the material would be admissible to counter the allegations of unfair conduct, the court said.

The defendants could not, however, offer evidence of their reliance on the advice of counsel as an affirmative defense. Reliance on the advice of counsel was not a valid defense on the question of knowledge required for individual liability, the court explained.

The case is No. 6:11-cv-1186-Orl-28TBS.

Harold E. Kirtz for the FTC. Richard A. Schonfeld (Chesnoff & Schonfeld) for Direct Benefits Group, LLC.

Cases: ConsumerProtection FloridaNews