Antitrust Law Daily Wrap Up, CONSUMER PROTECTION—N.D. Ill.: FTC claims of deceptive marketing of a medical plan to elderly consumers proceed, (Jan 27, 2014)

By Edward L. Puzzo, J.D.

The heightened pleading standards of Federal Rule of Civil Procedure 9(b) did not apply to FTC allegations of a deceptive marketing campaign for a medical discount plan targeting elderly and infirm consumers, the federal district court in Chicago has ruled (FTC v. AFD Advisors, LLC, January 24, 2014, Zagel, J.).

The FTC alleged that defendants had conducted a deceptive telemarketing campaign in violation of the Act and the Telemarketing Sale Rule (TSR) The defendants contended that the FTC complaint failed to meet the “who, what, when, where, and how” requirements of particularity required of complaints of fraud under the heightened pleading standard of Rule 9(b).

Allegations. The FTC complaint alleged that the telemarketing scheme involved the deceptive marketing and selling of a medical discount plan to elderly and infirm consumers by leading consumers to believe that the defendants were affiliated with Medicare, Social Security, or the consumer’s own medical insurance provider. The targeted consumers were then led to believe that enrollment in a new prescription drug discount card was required for consumers to continue receiving Medicare, Social Security, or medical insurance benefits. In actuality, it was alleged, the drug discount card was available free of charge and typically provided no additional benefit to consumers receiving government or private medical insurance benefits.

Before the court was a motion to dismiss filed by corporate defendants 9262-2182 Quebec Inc. and 9210-7838 Quebec Inc. and individual defendants Stephane Scebba Fawaz Sebai. These defendants argued that the pleadings lacked specificity, did not pinpoint which acts were committed by which of the ten individual or corporate defendants named in the complaint, and did not specify how each defendant had control or constructive knowledge of their co-defendants’ acts.

Pleading standard. The Seventh Circuit has not squarely addressed whether a general or heightened pleading standard should be applied to a claim for deceptive conduct, the court stated. However, the court ruled, the general pleading standard is normally applied to a claim of unfair conduct. Since neither fraud nor mistake is an element of deceptive conduct under the FTC Act and the TSR, the court continued, the heightened pleading standard of Rule 9(b) does not apply.

To state a claim under § 5(a) of the FTC Act, the court explained, the FTC must allege that the defendant was involved in (1) an act or practice that involved a (2) material misrepresentation or omission that is (3) likely to mislead consumers acting reasonably under the circumstances. Unlike for a claim for fraud, an intent to deceive is not a requirement under § 5 of the FTC Act, the court stated.

The court ruled that, under the general pleading standards of Rule 8(a), the level of specificity sought by defendants was not required. The pleadings were sufficient to provide notice of the claims alleged. Thus, the court denied the defendants’ motion to dismiss the claims for lack of specificity.

The case is Civil Action No. 13 CV 6420.

Attorneys: William Joseph Hodor for FTC. Andrew N Cove (Cove & Associates, P.A.) for 9262-2182 Quebec Inc., Stephane Scebba, 9210-7838 Quebec Inc., and Fawaz Sebai.

Companies: AFD Advisors, LLC; 9262-2182 Quebec Inc.; 9210-7838 Quebec Inc.

Cases: ConsumerProtection IllinoisNews