Antitrust Law Daily Wrap Up, CONSUMER PROTECTION—W.D. Wash.: FTC granted summary judgment and injunction in action against telemarketers, (Oct 30, 2013)

By Jody Coultas, J.D.

The FTC’s motion for summary judgment in a telemarketing fraud case filed against Matthew J. Loewen and his companies was granted by the federal district court in Seattle (FTC v. Loewen, October 29, 2013, Pechman, M.).

The FTC alleged that Loewen and his companies violated Section 5 of the FTC Act and the Telemarketing Sales Rule by operating a telemarketing scheme that defrauded the sellers of vehicles on Craigslist.org and similar websites. Loewen’s telemarketers contacted the Craigslist sellers and fraudulently offered to match them with specific buyers, falsely represented that a sale would be accomplished within a short period of time, and sold refund guarantees for an additional fee. According to the FTC, due to undisclosed conditions, the refunds were nearly impossible to redeem. Those who accepted Loewen’s deal soon discovered that neither buyers for their vehicles nor refunds from the telemarketer were forthcoming. Loewen’s companies also did not provide promised financing for credit-challenged buyers.

The FTC was granted a motion for sanctions against Loewen based on his failure to participate fully in discovery, but was denied temporary restraining orders. The FTC then moved for summary judgment or, in the alternative, to strike Loewen’s answer and enter defaults against each defendant for failure to comply with the court’s sanctions order. Loewen did not respond to the motion for summary judgment.

Section 5(a) of the FTC Act prohibits unfair or deceptive acts or practices in or affecting commerce. In order to establish liability under Section 5(a), the FTC must demonstrate (1) that there was a representation; (2) that the representation was likely to mislead consumers acting reasonably under the circumstances; and (3) that the representation was material.

The court granted the FTC summary judgment of its FTC Act claims based on the lack of a dispute of the material facts. The FTC alleged that Loewen’s companies stated to consumers that they had found a buyer for the consumer’s vehicle and would put the consumer in contact with the buyer for a fee, typically $399.00, and that, if the consumer purchased a refund insurance policy for an additional $99, then the companies would refund the $399 initial fee if they failed to secure a buyer for the vehicle within 90 days. These statements were material and likely to mislead reasonable customers. Both the promise of a buyer and a money-back guarantee would likely lure consumers attempting to sell vehicles. The conclusion that these statements were deceptive was supported by the high chargeback rates Loewen’s companies experienced and the need to resort to multiple D/B/As in order to evade poor publicity and thwart credit-card excessive-chargeback policies.

Telemarketing Sales Rule. No genuine issue of fact existed with respect to Loewen’s liability under the Telemarketing Sales Rule (TSR), according to the court. The TSR prohibits telemarketers from making a false or misleading statement to induce any person to pay for goods or services. The statements made to consumers were misleading and made in order to persuade customers to pay hundreds of dollars to Loewen’s companies.

Because the lines between the four corporate defendants, all controlled solely by Loewen and shared employees and funds, were blurred to the point where they can only be considered a common enterprise, Loewen could be held individually liable. Individual liability turned on whether Loewen had knowledge that the corporation or one of its agents engaged in dishonest or fraudulent conduct, that the misrepresentations were the type upon which a reasonable and prudent person would rely, and that consumer injury resulted, and whether he participated directly in the deceptive acts or had the authority to control them. There was sufficient evidence that Loewen had the authority to control the deceptive acts and was aware of the companies’ actions.

Injunctive, monetary relief. The FTC was entitled to a permanent injunction enjoining the defendants from violating the FTC Act and the TSR and from engaging in telemarketing and payment processing, and to monetary relief totaling $5,109,366.62. The relief requested by the FTC was warranted to prevent Loewen and his companies from continuing to engage in the deceptive practices alleged, according to the court. The equitable monetary relief requested was the amount of consumer losses, as measured by all adjusted net credit card sales by Loewen’s merchant accounts for the telemarketing operation from March 2010 through the present. The requested injunctive relief was a ban on all telemarketing and payment processing. The injunction was properly directed at the activities which gave rise to Loewen’s liability, and did not prohibit him from engaging in business ventures other than telemarketing and payment processing. There was also sufficient evidence that Loewen’s activities caused the amount of consumer losses requested.

The case is No. C12-1207 MJP.

Attorneys: Jennifer Larabee for FTC.

Cases: Privacy WashingtonNews