Federal Trade Commission v. Publishers Business Services, Inc. et al, No. 2:2008cv00620 - Document 151 (D. Nev. 2010)
Court Description: ORDER Granting 86 Motion for Summary Judgment and Denying 99 Motion for Summary Judgment. Opening brief due by 4/20/2010. Response brief due by 4/30/2010. Reply brief due by 5/7/2010. Hearing re: Damages set for 5/18/2010 09:30 AM in LV Courtroom 7C before Judge Philip M. Pro. Signed by Judge Philip M. Pro on 4/7/10. (Copies have been distributed pursuant to the NEF - ASB)
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Federal Trade Commission v. Publishers Business Services, Inc. et al Doc. 151 1 2 3 UNITED STATES DISTRICT COURT 4 DISTRICT OF NEVADA 5 6 FEDERAL TRADE COMMISSION, 7 Plaintiff, 8 v. 9 10 PUBLISHERS BUSINESS SERVICES, INC., et al., 11 Defendants. *** ) ) ) ) ) ) ) ) ) ) ) ) 2:08-CV-00620-PMP-PAL ORDER 12 13 Presently before the Court is Plaintiff the Federal Trade Commission’s (“FTC”) 14 Motion for Summary Judgment (Doc. #86), filed on July 31, 2009. Defendants filed an 15 Opposition (Doc. #131) on November 23, 2009. Plaintiff filed a Reply (Doc. #145) on 16 December 7, 2009. 17 Also before the Court is Defendants’ Motion for Summary Judgment (Doc. #99), 18 filed on July 31, 2009. Plaintiff filed an Opposition (Doc. #134) on November 23, 2009. 19 Plaintiff also filed Evidentiary Objections to Defendants’ Motion (Doc. #139) on November 20 23, 2009. Defendants filed a Reply (Doc. #144) on December 7, 2009. 21 I. BACKGROUND 22 A. The Defendants 23 Edward Dantuma (“Edward”)1 is the President and owner of Ed Dantuma 24 25 26 1 Due to the fact that Defendants share the last name “Dantuma,” the Court hereinafter will refer to them by their first names. 1 Dockets.Justia.com 1 Enterprises (“EDE”), a magazine subscription sales business. (FTC SJ Ex. 10 at 11, Ex. 8 2 at 107-08.)2 EDE operates under the trade names Publishers Direct Service (“PDS”) and 3 Publishers Business Services (“PBS”). (FTC SJ Ex. 2 at 1-2. ) Initially, Edward sold 4 magazines under the name PDS. (FTC SJ Ex. 10 at 74-75.) When Edward decided to start 5 selling magazines to businesses, he stopped selling under PDS and incorporated the name 6 PBS. (Id.) PBS maintains offices in Altamonte Springs, Florida, Miami, Florida, and 7 Toledo, Ohio. (FTC SJ Ex. 2 at 2-3.) PBS also maintains a “virtual office” in Henderson, 8 Nevada. (FTC TRO Vol. 4 at 589.)3 9 Along with his wife, Persis, Edward’s four children, Jeff, Dirk, Dries, and Brenda 10 Dantuma Schang (“Brenda”) participate in the family business. (Defs.’ Mot. Summ. J. 11 [“Defs.’ Mot.”] (Doc. #99), Ex. A at ¶ 7.) Persis manages PBS’s and PDS’s records. (FTC 12 SJ Ex. 8 at 104.) Jeff is in charge of the companies’ sales departments in Altamonte 13 Springs and Toledo. (Id. at 106). Dirk handles the more serious customer complaints, as 14 well as making sure the companies’ sales and collections scripts are in compliance with the 15 2 16 17 18 19 20 21 22 During the nearly four and a half months consumed by briefing of the crossmotions for summary judgment, the parties made fifty-four separate filings, including voluminous exhibits, and a variety of unnecessary evidentiary objections for the Court’s consideration. The FTC labeled its exhibits to its Summary Judgment Motion, including those in support of FTC’s Opposition to PBS’s Summary Judgment Motion, in consecutive numerical order. FTC SJ Exs. 1-42 can be found in Declaration Regarding FTC’s Motion for Summary Judgment (Doc. #92-97, #100, & #102-04). FTC SJ Exs. 43-47 can be found in Sealed Notice of Manual Filing (Doc. #87). FTC SJ Exs. 48-69 can be found in Declaration Regarding FTC’s Motion for Summary Judgment & FTC’s Opposition to PBS’s Motion for Summary Judgment (Doc. #135-138). Hereafter, the Court will refer to the exhibits as “FTC SJ Ex.” with the exhibit number as the FTC has labeled them. 23 3 24 25 26 The FTC filed its exhibits in support of Plaintiff’s Motion for a Temporary Restraining Order in four separate volumes. Volume one can be found at Doc. #5. Volume 2 can be found at Doc. #6. Volume three can be found at Doc. #7. Volume four can be found at Doc. #19. The Court hereafter will refer to the exhibits as “FTC TRO” and the corresponding volume number. 2 1 law. (Id. at 39-41.) Dries is in charge of the companies’ verification, collections, and 2 customer service departments, all located at the Altamonte Springs office. (FTC SJ Ex. 9 at 3 26, Ex. 10 at 53-54.) Brenda is in charge of the companies’ Miami sales office, accounts 4 payable, and correspondence with the magazine publishers. (FTC SJ Ex. 13 at 18-19.) 5 B. The PBS Process 6 PBS offers two different types of magazine subscriptions: Paid by Subscription 7 orders and Single Order Subscription (“SOS”) orders. (Defs.’ Mot., Ex. C at ¶ 5.) Paid by 8 Subscription orders are multiple subscriptions usually consisting of between five and seven 9 different magazines and lasting sixty months. (Id. at ¶ 6.) The customer typically pays for 10 the order over a period of months. (Id. at ¶ 6.) An SOS order consists of just one magazine 11 and the customer pays for the entire amount of the subscription up front. (Id. at ¶ 8.) 12 For Paid by Subscription orders, PBS implements a two stage telemarketing 13 process (1) the lead call and (2) the verification call. (Defs.’ Mot., Ex. C at ¶ 11.) In the 14 lead call, the sales representative uses a “lead card,” which PBS obtains from Dun & 15 Bradstreet, that contains the name, telephone number, and address of a business. (FTC SJ 16 Ex. 10 at 78-79; Ex. 42, Attach. 4.) The lead card also contains the name of a contact 17 person for the business. (FTC SJ Ex. 10 at 79.) However, PBS permits the sales 18 representative to sell to anyone who answers the phone. (FTC SJ Ex. 11 at 54.) 19 For each call, PBS directs the sales representative to follow a marketing script 20 word for word. (Defs.’ Mot., Ex. B at ¶ 10; see also FTC SJ Exs. 17-18.) The script states 21 the following: 22 23 24 25 26 This is with Publishers Business Service to whom am I , we have been asked to contact a few speaking with please? Hi business people in your area and I just wanted to ask you a few questions on your personal buying habits and if you could help me we have a small surprise for you, nothing big but it’s nice, how long have more or less than 1 year? Now just for our you been employed at ? advertisers information, may I ask your age & what you do at What do you most often use money order, credit card, or check? Ok, , I want to thank you for helping me and with our best wishes you 3 1 will 2 /// 3 /// receive the next 60 issues of:[4] (Man) = Mens Journal, Car & Driver, Inc., and also for your enjoyment Woman’s Day and Rolling Stone (Woman) = Bon Appetit, Men’s Journal, Woman’s Day and also for your enjoyment Rolling Stone and Elle. Now, let me assure you that there is no catch involved, however, there is a sound business reason behind the whole thing. The advertisers have authorized us to send the magazines I mentioned to assure them that their ads will be read. Now, you will receive a guarantee stating that everything I am promising you is correct, and we will be mailing this to you, do you want me to mail it to your home or business address? . . . Now we’re not going to ask you to buy any cash subscriptions or anything like that. The only thing we have been asking people like yourself is to thank us in return by helping to defray the cost of getting them out to you, and I’m sure that you wouldn’t mind that because it’s only $2 dollars and 76 cents a week which covers all 5 of the publications and there is absolutely no other charge, and it’s payable by the month, most people I’ve talked to today have been more than happy to go along with this and I’m sure that you too will agree that 5 magazines is quite a lot for just $2 dollars and 76 cents a week right! Now we don’t collect the $2 dollars and 76 cents each week, that would be sort of a nuisance, so what we do is send you a small supply of self-addressed envelopes and you can send it in by our monthly honor plan, or faster if you like. Most people send it in two months at a time since it is such a small amount, and, you will receive a written guarantee to assure you what I have told you is correct, now, just in case we cannot contact you at work, do you have another phone number we can reach you at. , for all the people who are taking advantage of And also our offer today, we are sending out the Go & Lucky to your business at no extra charge, hold for one second , my supervisor would like to verify some information with you..... 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 (Defs.’ Mot., Ex. C, Attach. 1.)5 21 The sales representative then transfers the customer to the shift supervisor. (Id., 22 23 4 24 25 26 The magazines offered differ depending on the magazines’ remit rates at the time. (FTC SJ Ex. 8 at 102.) 5 PBS sometimes modifies its scripts, but the same basic information appears in all the scripts. (FTC SJ Ex. 42, Attachs. 5-7.) 4 1 2 3 4 5 6 7 8 Ex. C at ¶ 16.) The shift supervisor also follows a script: Hi Mr./Mrs. , I just wanted to take a moment to double check all of the information we have on your order to make sure everything is correct. Now I see that you want these to go to your Business/Home address at read address and you are age and occupation and you use check/credit card most often. Now just as name told you , it’s all 7 publications for just $2.76 cents a week, which is 11.96 a month, now instead of paying 11.96 each month for the full 60 months, we ask that you send it in two months at a time, which is 29.90 a month for the first 24 and nothing the remaining 36 months, do you see how that works?... , to guarantee these low rates, I’ll lock in the price right Ok now and we will be calling you back shortly to confirm this with you. , Now do you have any questions concerning your order Mr./Mrs. thanks again, and we know that you will enjoy the publications. Bye. 9 (Id., Ex. C, Attach. 3.) At the end of the lead call, the shift supervisor notifies 10 the customer that he or she will receive another call in the near future to confirm the 11 order. (Id., Ex. C at ¶ 17.) 12 In their depositions, Dirk, Edward and Brenda explain the meaning of certain 13 statements in the script. For example, despite what the script says, PBS does not actually 14 provide the information it gathers from customers to advertisers. (FTC SJ Ex. 8 at 71-72.) 15 The statement “helping to defray the cost of getting them out to you” refers to the cost of 16 the magazine subscription, not the cost of shipping. (Id. at 198.) The statement “cash 17 subscriptions,” Edward explains, is in reference to subscriptions where the publisher 18 requires the consumer to pay for the subscriptions up front. (FTC SJ Ex. 10 at 127.) The 19 statement “monthly honor plan” refers to a plan where the consumer makes monthly 20 payments. (FTC SJ Ex. 14 at 148.) 21 Although PBS instructs its employees to follow the script, former PBS employees 22 heard other representatives routinely deviate from the script. (FTC SJ Ex. 17 at ¶ 14, Ex. 18 23 at ¶ 13-14, Ex. 19 at ¶ 14.) One former PBS sales representative personally recounted that 24 deviating from the script often resulted in higher sales. (FTC SJ Ex. 18 at ¶ 14.) According 25 to another former PBS sales representative, in the Miami office, experienced sales 26 5 1 representatives (those who had been with PBS six months or longer) were encouraged to 2 deviate from the script and were assigned to private sales rooms to separate them from the 3 newer sales representatives. (FTC SJ Ex. 19 at ¶ 14.) In the Altamonte Springs office, 4 another former sales representative recounted that occasionally the supervisor would tell the 5 employees that there had been a lot of customer complaints and that the salespeople needed 6 to stick to the script. (FTC SJ Ex. 17 at ¶ 15.) However, the same employee noted that she 7 never had heard of anyone being disciplined for deviating from the script. (Id. at ¶ 15; see 8 also FTC SJ Ex. 19 at ¶ 22 (a different employee had a similar experience in the Miami 9 office).) 10 The sales department does not have a rebuttal script. (FTC SJ Ex. 66 at 61.) 11 Instead, employees are directed to end the phone call if the customer is not interested. (Id., 12 FTC SJ Ex. 17 at ¶ 10.) One former PBS sales representative, Shadiayah Aljubailah 13 (“Aljubailah”), explains that if a customer said they were busy, she was instructed to put the 14 card in the “call-back” pile. (FTC SJ Ex. 15 at ¶ 9.) According to Aljubailah, if the 15 customer did not want to receive any more calls from PBS, she was instructed to put the 16 card in the same “call-back” pile. (Id.) Another former sales representative, Nichole 17 Golden (“Golden”), avers that her supervisor told her the cards in the “call-back” pile were 18 considered hotter leads because the first call had confirmed the business was open. (FTC SJ 19 Ex. 17 at ¶ 8.) Golden was instructed to call the same businesses repeatedly because even 20 though the person who initially answered the phone declined, someone else might agree to 21 the offer on a subsequent call. (Id.) However, according to Jeff Dantuma, PBS sales 22 representatives are authorized to call a business more than once only if no one answers the 23 first time. (Defs.’ Opp’n to FTC’s Mot. Summ. J. [“Defs.’ Opp’n”], Ex. D at ¶ 14.) 24 25 26 During the second phase of the process, a “verifier” calls the customer to confirm the order. (Defs.’ Mot., Ex. B at ¶ 17.) Verifiers use the following script: Hi, Is this Mr./Mrs. ? This is 6 , the new account 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 manager with Publishers Business Services. I’m just calling to thank you for doing the survey and the maga[z]ine order with us a little while ago, and I just need to quickly tape verify the information with you ok? (TURN TAPE ON) Can you hear me ok Mr./Mrs. (Full Name)? We are now on tape and I do have your permission correct? (WAIT FOR RESPONSE) Today is (Date) and we processed your order on (Date). We will be mailing these to Address. Your order calls for (Read Magazines). Your payment plan and total cost as explained to you and /per month for only the first also listed on your order will be $ months and you will pay nothing the remaining months. Do you ? (WAIT FOR understand how that works Mr./Mrs. RESPONSE) It does cost our company a great deal of time and money to enter the order for you, and because of this we do ask that you will take the magazines for the full term and make the monthly payments as agreed. This order cannot be cancelled during the term of the agreement, however it will cancel automatically after ? (WAIT FOR that, is that acceptable to you Mr./Mrs. RESPONSE) Now it does take approximately 8-10 weeks to get your services started. And just to quickly review your credit information, I see that you are (Age) and a (Occupation) at (Business). (If they are not the owners, ask the following) And how long have you been employed at (Business) ? And would you say that your monthly income is more than $1,000 per month? (WAIT FOR RESPONSE) And your home phone # is (Read Home Phone) (If none listed ask; Do you have another # we can reach you at?)***(INFORMATION REQUIRED)*** (If it is going to a residence) Are you renting, buying or living with family? Are you married or single? (If Married) May I have your spouse’s name? How long have you lived at your residence? . How will you be making payments on this Okay, Mr./Mrs by credit or checking account? . . . That’s fine, we will send out a monthly statement and an envelope for mailing in your payments. You will receive you[r] first statement within two weeks. Can you mail that back to us by (Date)? (WAIT FOR RESPONSE) Now I’ve done all ?... the talking, do you have any questions at this time Mr./Mrs. 20 21 22 (Id., Attach. 5.) Kristen Cholewin (“Cholewin”), a former PDS verifier, worked for PDS for 23 about a month at the end of 2005. (FTC SJ Ex. 16 at ¶ 2.) Cholewin explains that although 24 she was given a script to follow word for word, she never heard of anyone being fired for 25 deviating from the script. (Id. at ¶¶ 8, 32.) As training, the supervisor made a few 26 verification calls in Cholewin’s presence. (Id. at ¶ 7.) Ms. Cholewin had a quota of tape 7 1 verifications that she needed to complete in a day. (Id. at ¶ 17.) Cholewin recounts that 2 verifiers were fired for not making their numbers and for generally giving up easily when a 3 customer would say that they did not want the magazines. (Id. at ¶ 32.) 4 Verifiers would receive sales slips filled out by the sales department containing the 5 customer’s name, phone number, and the list of magazines ordered. (Id. at ¶ 7.) According 6 to Cholewin, the verifiers were to write on the sales slips what happened on the call. (Id. at 7 ¶ 18.) If the customer said no to the magazines, Cholewin was instructed to draw a large 8 “X” across the order slip to indicate the customer’s refusal. (Id.) The verifiers were 9 strongly discouraged from marking an order with an “X.” (Id. at ¶¶ 18, 22.) Because of the 10 pressure to keep refusal slips to a minimum, Cholewin put “refusal” sales slips back in the 11 call back pile instead of marking them with an “X.” (Id. at ¶ 19.) Cholewin believes other 12 verifiers were doing this as well because she had at least ten to fifteen calls per day where 13 the customer would tell her that they already had received numerous calls from PBS at 14 which time they told the representative they were refusing the magazines. (Id.) Cholewin 15 did not receive training on how to deal with “do-not-call requests.” (Id. at ¶ 21.) 16 Cholewin also explains that verifiers were given a “rebuttals” script containing 17 answers to frequently asked questions. (Id. at ¶ 14.) For example, if a customer asks about 18 the total cost of the subscription, Cholewin was instructed to repeat the weekly and monthly 19 price as stated in the script, and to avoid telling the customer the total price if possible. (Id.) 20 However, Dirk testified that although the instruction is not written down, verifiers are 21 directed to tell the customer the total price of the magazines if asked. (FTC SJ Ex. 64 at 22 209.) 23 PBS runs monthly reports that detail how many complaints each salesperson 24 received. (FTC SJ Ex. 9 at 82-83.) If a salesperson’s complaints are out of the norm, as 25 compared to the other salespeople, Dries will review the salesperson’s verification tapes. 26 (FTC SJ Ex. 9 at 84-85.) At his deposition, Dries testified that if he finds that the 8 1 salesperson is not following the script, she receives a warning, and if it happens a second 2 time she is fired. (Id. at 82.) Later in Dries’ deposition, Dries testified that if he finds on 3 the tape that the salesperson is not following the script, or she is doing the order improperly, 4 she is fired immediately. (Id. at 85.) 5 If a customer calls and complains that they did not agree to the order, the 6 customer service representative is directed to check the verification tape. (FTC SJ Ex. 65 at 7 88.) If the tape reveals the verification was done incorrectly, the order is cancelled and put 8 in the “bad tapes report.” (FTC SJ Ex. 65 at 88.) The FTC highlights four PBS verifiers 9 who had numerous “bad tape reports” and as of June 10, 2008 were listed as current PBS 10 employees. (FTC SJ Ex. 42, Attach. 18-22 & 25.) For example, between August 2005 and 11 April 2008, Bianca Gonzalez incorrectly explained PBS’s cancellation policy or did not 12 clearly inform customers that they were entering into a commitment to purchase magazines 13 twenty-one times. (Id. at 948, 950, 952-957, 959, 963, 966.) Between April 2006 and June 14 2007, Ashley Fulford processed orders notwithstanding the customers’ statements that they 15 did not agree to purchase the subscription or she did not inform the customer about the 16 company’s cancellation policy thirty times. (FTC SJ Ex. 42, Attach. 19 at 968, 970-979.) 17 Between July 2006 and February 2007, Yolanda Woodbury (“Woodbury”) did not clearly 18 inform customers of PBS’s cancellation policy or processed the order as complete even 19 where the customers stated they were not agreeing to purchase the magazines twenty-eight 20 times. (Id., Attach. 21 at 987-995.) On December 12, 2006, an account was cancelled after 21 Dries listened to the verification tape and found Woodbury was evasive and was not 22 consistent in her responses to the customer’s questions. (Id. at 992.) Between July 2005 23 and August 2007, Renee Spagnol’s (“Spagnol”) verification recordings either cut off at 24 crucial points where the customer is supposed to agree to the subscription terms, or when 25 the customer started to ask a question, or Spagnol did not accurately inform the customer of 26 the terms of the offer fifty-three times. (FTC SJ Ex. 42, Attach. 22 at 998-1000, 1003-20.) 9 1 In one instance, Spagnol continued the verification even after the customer hung up the 2 phone. (Id. at 1009.) Spagnol later was promoted to the position of verification supervisor. 3 (FTC SJ Ex. 9 at 216.) 4 After the verification call, PBS sends a written invoice to the customer containing 5 information on the price of the subscription, the length of the subscription, the terms of the 6 agreement, and the non-cancellation policy. (Defs.’ Mot., Ex. B, Attach. 8.) PBS also 7 sends a “First Payment Coupon,” which Defendants ask the consumer to fill out and return 8 along with their first payment. (FTC SJ Ex. 42, Attach. 13.) The First Payment Coupons 9 ask the consumer to rate PBS and give the consumer three possible rating choices: 10 11 excellent, good, and fair. (FTC SJ Ex. 42, Attach. 13.) PBS implements an “internal control period” of ten business days before 12 processing the order with the publishers, within which time the customer may cancel. 13 (Defs.’ Mot., Ex. B at ¶ 23.) According to Dries and Brenda, if a customer contacts PBS 14 within the internal control period and asks to cancel for any reason, PBS honors the request 15 without question. (Id.; FTC SJ Ex. 63 at 181.) However, unless the customer lives in a 16 buyer’s right to cancel state, PBS does not notify the customer of this cancellation period. 17 (FTC SJ Ex. 64 at 57.) 18 In the event a customer does not pay for the magazines after PBS places the order 19 with the publishers, a PBS collector will attempt to collect on the unpaid account. (Defs.’ 20 Mot., Ex. B at ¶ 31.) PBS does not hire outside collection companies, nor does it report 21 delinquent accounts to the credit bureaus or initiate legal proceedings against customers 22 with delinquent accounts. (Id.) In attempting to collect, PBS collections agents call the 23 customer and send out invoices. (FTC SJ Ex. 8 at 217, Ex. 9 at 142-43.) PBS also sends 24 out letters under the names of fictitious people, with certain names corresponding to the 25 length of delinquency. (FTC SJ Ex. 9 at 143-45.) For example, if the customer is three 26 months delinquent he or she receives a letter from “James Laurence.” (Id. at 144). If the 10 1 customer is four months delinquent he or she receives a letter from “John Carlton” which 2 informs the customer that if he or she “fails to pay this account in full, we will move 3 forward reviewing our rights against you for all monies due plus interests and costs, as 4 provided by the agreement.” (Id. at 144-45, Ex. 59, Attach. 4.) The customer receives a 5 letter from “Bob Callahan” if he or she is six or seven months delinquent. (FTC SJ Ex. 9 at 6 145.) The letter identifies Bob Callahan as part of PBS’s legal department, however PBS 7 does not have a legal department. (FTC TRO Vol. 1 at 81; FTC SJ Ex. 9 at 156.) 8 9 According to Dries, once a PBS collection agent speaks to a customer, a “hold” is placed on the account for a certain period of time. (Defs.’ Mot., Ex. B at ¶ 34.) During the 10 hold period, PBS does not contact the customer. (Id.) Typically the hold is between ten 11 and fifteen days; however, if the customer refuses to pay, the collector is not authorized to 12 call that customer and the customer is sent to the customer service department for 13 resolution. (Id.) Edward testified that it is against PBS’s company policy for collections 14 agents to threaten customers. (FTC SJ Ex. 10 at 31-32.) Additionally, according to Dries, 15 PBS maintains an internal “do-not-call” list and will cancel the account if they cannot 16 resolve the customer’s concerns. (Id. at ¶ 38.) 17 While PBS has the ability to monitor employees’ calls, Brenda only monitors 18 calls at the Miami office when she is on location, which is approximately twice a year. 19 (FTC SJ Ex. 8 at 228-29, Ex. 63 at 126-27.) Jeff monitors calls at the Altamonte Springs 20 office, but he only monitors what the employee, not the customer, is saying. (FTC SJ Ex. 21 66 at 60.) According to Edward, however, Jeff, Dries, and several other managers have 22 monitoring equipment that allows them to listen to both ends of the call, and all the calls are 23 closely monitored. (Defs.’ Opp’n, Ex. E at 93-94.) 24 C. Complaints & Legal Action 25 Between January 1, 2004 and August 31, 2008, Defendants made approximately 26 25 million telemarketing calls and received 1,101 consumer complaints. (FTC SJ Ex. 4 at 11 1 5-6.) Of the 1,101 complaints sent to Defendants, 152 were sent by the consumers’ 2 attorneys, 220 were sent by a state Attorney General, and 729 were sent by the Better 3 Business Bureau (“BBB”). (FTC SJ Ex. 42, Attach. 11.) Between 2000 and 2008, the 4 Federal Trade Commission (“FTC”) received approximately 400 consumer complaints 5 about PBS. (FTC TRO Vol. 3 at 369, Vol. 4 at 536.) Between May 2005 and May 2008, 6 the Nevada BBB has received 504 complaints from consumers about PBS. (FTC TRO Vol. 7 1 at 129.) Between October 12, 2004 and July 11, 2008 consumers submitted 556 8 complaints to the BBB. (FTC SJ Ex. 42 at ¶ 28.) It is unclear from the record to what 9 extent there is overlap among consumers complaining to the various agencies. 10 Nevertheless, it is undisputed that consumers have filed hundreds of complaints against 11 Defendants. 12 In addition to complaints to the various agencies or through an attorney, 13 consumers complained on the “First Payment Coupons.” (FTC SJ Ex. 42, Attach. 13.) Of 14 the approximately 1,537 First Payment Coupons Defendants provided to the FTC in 15 discovery, when rating PBS, 546 customers marked “excellent,” 674 customers marked 16 “good,” and 317 customers marked “fair.” (Defs.’ Opp’n, Ex. A at ¶ 16.) The FTC 17 attached eighty-four of the First Payment Coupons as exhibits. (FTC SJ Ex. 42, Attach. 18 13.) On twenty-three out of eighty-four First Payment coupons, consumers complained 19 about being called at work, that the representative spoke too fast, or that the terms of the 20 offer were not made clear. (FTC SJ Ex. 42, Attach. 13.) Some of the consumers who rated 21 PBS as “good” also included written complaints on the First Payment Coupon. (FTC SJ 22 Ex. 42, Attach. 13 at 875 (“talking to people at work is not a good thing”), 878 (“was 23 rushed need to have changed. Called me at work”), 883 (“called at work while I was busy 24 took too long”), 887 (“poor timing to call at work”), 891 (“it was as though I was forced 25 into buying magazines” ).) 26 Between January 1, 2004 and August 31, 2008, Defendants collected 12 1 $40,456,893.25 from consumers in connection with Paid by Subscription and SOS sales. 2 (FTC SJ Ex. 42, Attach. 9.) During that same time period, Defendants refunded 3 $265,244.25 to consumers. (FTC SJ Ex. 42, Attach. 10.) Additionally, between August 4 2009 and October 2009, PBS charged approximately $671,958.65 to consumers’ credit 5 cards. (Defs.’ Opp’n, Ex, A at ¶ 23.) Of that, consumers disputed approximately 6 $5,326.99. (Id.) Defendants also have been the subject of litigation in several states.6 In three 7 8 states, the Attorney General commenced an action against PDS after receiving complaints 9 that PDS was (1) refusing to allow consumers to cancel subscriptions; (2) failing to inform 10 consumers of their right to cancel;7 and (3) making telephone sales presentations that were 11 false, deceptive, and contained omissions of material fact. (FTC TRO Vol. 3 at 456-502.) 12 Defendants subsequently entered into Consent Decrees requiring Defendants to, among 13 other things: (1) disclose all material terms of the offer, including total cost and length of 14 subscription; (2) refrain from making false or misleading statements in telephone sales 15 presentations; and (3) refrain from using abusive language and making threats during 16 collection calls or in collections letters. (Id. at 456-502.) The Florida and Texas Attorneys 17 General also investigated Defendants in 2003 and 2007, respectively. (FTC TRO Vol. 1 at 18 182, Vol. 2 at 275-78.) 19 The FTC provided forty-one declarations of PBS consumers, all of whom 20 6 21 22 23 24 25 26 An Idaho Assurance of Voluntary Compliance, entered March 4, 1991 against PDS. (FTC TRO Vol. 3, Ex. 11.) A Wisconsin Consent Judgment, entered June 1995 against PDS. (Id., Ex. 12.) An Illinois Federal Consent Decree, entered March 31, 1998 against PDS and PBS. (Id., Ex. 13.) The Court hereinafter will refer to the three state orders as Consent Decrees. In addition, a class action complaint was filed in California in July 2007, Johnson v. Publishers Business Services, Inc., Case No. 2:07-CV-01394. (Id., Ex. 14.) 7 Wisconsin and Illinois have state laws requiring a “buyer’s right to cancel notice.” (FTC TRO Vol. 3, Exs. 12-13.) 13 1 complained to either the BBB or the FTC. (FTC TRO Vol. 1 at 1-112; FTC SJ Exs. 27-40, 2 48-62.)8 Out of all the consumers who provided declarations, seven consumers paid PBS 3 some, if not all, that PBS said they owed. (FTC SJ Exs. 29, 36, 40, 54, 62; FTC TRO Vol. 4 1 at 29,9 82.10) The consumers’ complaints regarding PBS, as well as the experiences of 5 former PBS employees, are summarized below. 6 1. Initial & Verification Calls 7 Many consumers said the PBS representative spoke rapidly, and that they were 8 confused by the terms of the offer because the PBS representative was speaking so fast. 9 (FTC SJ Exs. 20-23, 25, 29, 40, 50, 54, 57, 61; FTC TRO Vol. 1 at 22, 105.) Eleven 10 consumers said they were busy at work and distracted when the PBS representative called. 11 (FTC SJ Exs. 20, 30-32, 34, 40, 48, 50, 55; FTC TRO Vol. 1 at 22, 105.) According to 12 former PDS verifier Cholewin, she was instructed “to talk fast so that the customer would 13 not be able to follow what [she] was saying and would not have time to ask questions.” 14 (FTC SJ Ex. 16 at ¶ 28.) Additionally, two former PBS sales representatives noted that they 15 were more successful selling to stores with younger employees who were busy with their 16 own customers because often they were too busy to listen carefully. (FTC SJ Ex. 18 at ¶ 17 16, Ex. 19 at ¶ 24.) 18 After the initial PBS sales call, seventeen consumers were left with the 19 impression that PBS was offering free magazines. (FTC SJ Exs. 30-31, 34, 37, 39-40, 50- 20 21 22 23 24 25 26 8 Nine of the declarations are parents, spouses, or supervisors of the consumer. (FTC TRO Vol. 1 at 14, 56, 96; FTC SJ Exs. 27-28, 38, 51, 57, 60.) 9 PBS reimbursed the consumer $841, the total PBS charged her for the magazines. However, PBS did not reimburse the consumer for the overdraft charges she incurred when PBS withdrew money from her account. (FTC TRO Vol. 1 at 29, 38-42, 54-55.) 10 PBS refunded the consumer $25 of the $125 PBS had charged her. (FTC TRO Vol. 1 at 82.) 14 1 55, 60-62; FTC TRO Vol. 1 at 27 & 101.) Alternatively, seventeen consumers believed that 2 the magazines were free with a nominal charge for shipping and handling. (FTC SJ Ex. 20 3 at 42-43 (one time $24 charge), Ex. 23 (one time $3 charge), Ex. 25, Ex. 29, Ex. 31, Ex. 36 4 ($18 a month for 6 months), Ex. 57 (less than $10 total); FTC TRO Vol. 1 at 1 ($20), 2, 20 5 ($24 for the year), 27 ($2 per magazine for 5 years), 62 ($3), 86 (less than $3), 96, 99 (less 6 than $ 3 per magazine), 105, 136.) Four of the remaining consumers who do not recall 7 being told the magazines were free, nonetheless, recall a total amount different from the 8 actual amount they were charged. (FTC SJ Ex. 29 ($185 for 5 years), Ex. 48 ($29.90), Ex. 9 49 (same), Ex. 58 ($31.40).) In sum, many of the consumers believed the initial 10 conversation represented the entire agreement between them and PBS: that the offer was 11 either free or a nominal amount, and that there was no long-term obligation or no obligation 12 at all. (FTC SJ Exs. 20-21, 23-24, 26, 29-30, 40; FTC SJ TRO Vol. 1 at 20, 22, 27, 60, 99, 13 101, 105.) A number of consumers believed they were not agreeing to accept the 14 magazines or to make any payments, but instead were agreeing to receive written materials 15 on the offer. (FTC SJ Exs. 20, 22, 24, 32; FTC TRO Vol. 1 at 20, 27.) 16 During the verification call, when the PBS verifier tells the consumer the purpose 17 of the call is to “verify” information, fifteen consumers believed this to mean that the 18 verifier was just going to confirm the terms previously disclosed in the initial call. (FTC SJ 19 Exs. 20-21, 24, 26, 29, 30-32, 36, 39, 40; FTC TRO Vol. 1 at 22, 27, 99, 101.) In several 20 verification recordings, consumers asked questions about whether they would be allowed to 21 review a written offer before committing to the subscriptions, the total price of the 22 magazines, the company’s cancellation policy, or a clarification on the length of the 23 subscription term. (FTC SJ Ex. 42 at ¶ 38, Attach. 8 at 738, 741, 763, 775-76, 803, 812- 24 13.) In these recordings, the verifier either ignored the consumer’s question, responded by 25 repeating parts of the script, or replied that they could not answer the question. (Id. at 738, 26 741, 763, 775-76, 803, 812-13.) In several of the verification recording transcripts, the 15 1 verifier told the consumer that they will be paying only for shipping and handling. (Id. at 2 747, 771, 803, 822-23.) 3 Additionally, although many of the verifiers informed the consumer that they 4 could change the magazines at any time, the verifiers did not inform the consumer that it 5 would cost three dollars to change. (See e.g., id. at 731, 735, 740, 741, 748, 751.) 6 Cholwein avers she was not instructed to inform customers of the charge and she never 7 heard any employees mention it during their calls. (FTC SJ Ex. 17 at ¶ 12.) According to 8 Dirk and Dries, PBS discloses the three dollar charge in the written materials, and 9 customers may change magazines once free of charge. (FTC SJ Ex. 64 at 208; Defs.’ Mot., 10 11 Ex. B at ¶ 27.) Some of the consumers’ declarations contradict their verification recordings. For 12 example, one consumer states in her declaration that she told the verifier she did not want 13 the magazines and the verifier told her she could not back out. (FTC SJ Ex. 52.) However, 14 the consumer does not say that in the verification recording. (Defs.’ Second Supp. 15 Verification Recordings (Doc. #146), Hall Verification.) In the declaration of another 16 consumer, the consumer states that the verifier told him the magazines were free but there 17 would be a nominal shipping charge. (FTC TRO Vol. 1 at 101.) However, in the 18 verification recording the verifier does not say the magazines are free. (FTC SJ Ex. 43, 19 Truiano Verification.) In his deposition, the consumer also admits that, contrary to his 20 declaration, he did not tell the PBS agent that he would not accept the offer until he 21 received the written materials. (FTC SJ Ex. 20 at 48.) A third consumer says she 22 understood the total to be eight dollars and ninety seven cents. (FTC SJ Ex. 57.) In the 23 verification recording, though the verifier does say “eight ninety seven” without using the 24 word “hundred,” she also explains the cost as “twenty-nine ninety” a month. (Defs.’ 25 Second Supp. Verification Recordings, Verification of O’Brien.) Yet another consumer 26 says he told the verifier he would not agree to anything until he received the written 16 1 materials. (FTC TRO Vol. 1 at 101). However, the consumer never says that in the 2 verification recording. (FTC SJ Ex. 42, Attach. 8 at 833.) 3 According to Dirk, PBS sufficiently informs the customer of the total cost of the 4 magazines by telling the customer the amount per week or month and the total number of 5 months. (FTC SJ Ex. 64 at 56.) Additionally, Dirk states that the total cost is on the written 6 materials and is disclosed to the customer before PBS collects any money. (Id. at 56.) 7 However, Dirk also notes that PBS uses the recorded verification call, which is placed 8 before the written materials are sent out, to “save an order” by explaining to the customer 9 that they have agreed to the terms on tape. (FTC SJ Ex. 8 at 214.) 10 2. Subsequent Communications 11 After receiving the invoice in the mail from PBS, fourteen of the declaratnts 12 attempted to cancel by either writing “cancel” on the invoice and sending it back to PBS, or 13 contacting PBS via email or telephone. (FTC SJ Exs. 20-27, 30, 36, 40; FTC TRO Vol. 1 at 14 20, 60, 82, 96.) Many consumers were told they were not able to cancel because PBS 15 already paid the magazine publishers for the consumers’ subscriptions. (FTC SJ Exs. 20, 16 21, 23; FTC TRO Vol. 1 at 29, 60, 96.) Dirk admits that even though PBS sells 17 subscriptions to its customers at a five year subscription term, some of the subscriptions 18 have one, two, or three year maximum terms. (FTC SJ Ex. 8 at 136-37; see also FTC TRO 19 Vol. 1 at 117; Vol. 2 at 292.) Because of this, at some point the sales representative will 20 have to renew the subscriptions. (FTC SJ Ex. 8 at 136-37.) However, according to Dirk, 21 PBS agents do not inform the customers that in some cases, the entire five year subscription 22 has not been prepaid. (Id. at 146-47.) When consumers subsequently complained to an 23 agency like the BBB or FTC, Defendants sent a letter to the agency stating that PBS 24 “thoroughly explained the terms of the order” and that the consumer expressly indicated he 25 or she wanted the magazines, but PBS nonetheless agreed to cancel the order. (FTC TRO 26 Vol. 1 at 13, 54, 104, 111, 135.) 17 1 Despite the PBS collections protocol, many consumers aver that PBS collections 2 agents called them at work even after they told the collections agent to stop. (FTC SJ Exs. 3 20, 23, 49, 55, 60, 62; FTC TRO Vol. 1 at 29, 60, 62.) Consumers also averred that PBS 4 agents called them numerous times a day. (FTC SJ Exs. 32, 49, 55, 62; FTC TRO Vol. 1 at 5 1, 29, 60, 62, 82, 105.) Many of the consumers reported that PBS threatened them. (FTC 6 SJ Exs. 22, 30, 50, 54, 60; FTC TRO Vol. 1 at 20, 82, 96, 101, 112.) For example seven 7 consumers said the PBS collections agents threatened to report the consumer to the local 8 credit bureau or collection agency, or that PBS would garnish the consumer’s wages. (FTC 9 SJ Exs. 22, 50; FTC TRO Vol. 1 at 20, 82, 96, 101, 112.) In addition, five consumers said 10 the collections agents represented themselves as PBS’s attorneys or threatened to take the 11 consumer to court. (FTC SJ Exs. 20, 30, 54; FTC TRO Vol. 1 at 82, 112.) 12 D. Procedural History 13 On May 14, 2008, the FTC filed a Complaint for injunctive and other equitable 14 relief alleging PBS engaged in unfair or deceptive acts or practices in or affecting 15 commerce in violation of Section 5(a) of the Federal Trade Commission Act (“FTC Act”), 16 15 U.S.C. § 45(a), and in violation of the FTC’s Telemarketing Sales Rule, 16 C.F.R Part 17 310. (FTC Compl. (Doc. #1).) On June 3, 2008, the parties entered into a Stipulated 18 Preliminary Injunction. (Stipulated Prelim. Inj. (Doc. #25).) On February 5, 2009, the FTC 19 filed an Amended Complaint (Doc. #62) adding Defendants Dries, Dirk and Jeffrey 20 Dantuma. The parties completed discovery on May 22, 2009. 21 On July 31, 2009, the parties filed cross motions for summary judgment. The 22 FTC contends PBS is in violation of the FTC Act, 15 U.S.C. § 45(a), because PBS makes 23 material misrepresentations to consumers in the initial telemarketing calls and in subsequent 24 communications with consumers. Additionally, the FTC argues PBS is subject to the 25 Telemarketing Sales Rule, 16 C.F.R. § 310, because it sells to consumers at their place of 26 business. FTC contends PBS is in violation of the Telemarketing Sales Rule because PBS 18 1 fails to disclose the purpose of its call to consumers, misrepresents the total cost of the 2 magazine subscriptions, makes false and misleading statements to induce payment for 3 goods, and engages in a pattern of abusive calls. The FTC seeks a permanent injunction 4 against Defendants, including the individual Defendants, which prohibits them from 5 engaging in telemarketing and the sale of magazines. The FTC also seeks monetary relief 6 in an amount equal to the Defendants’ gross revenues less the amount Defendants have 7 refunded consumers. 8 PBS contends it is not in violation of the FTC Act because all the material 9 representations it makes are true. Furthermore, PBS argues its non-material commentary 10 would not mislead a customer acting reasonably. With respect to the Telemarketing Sales 11 Rule, PBS contends the plain language of the business-to-business exemption of the 12 Telemarketing Sales Rule exempts PBS from its requirements. Nevertheless, PBS argues it 13 complies with the Telemarketing Sales Rule because PBS discloses the purpose of its call, 14 truthfully represents the total cost of the magazines, and strictly limits the number of times a 15 customer may be contacted. 16 II. LEGAL STANDARD 17 Summary judgment is appropriate “if the pleadings, the discovery and disclosure 18 materials on file, and any affidavits show that there is no genuine issue as to any material 19 fact and that the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(c). 20 Initially, the moving party bears the burden of proving there is no genuine issue of material 21 fact. Leisek v. Brightwood Corp., 278 F.3d 895, 898 (9th Cir. 2002). If the moving party 22 meets its burden, the burden shifts to the nonmoving party to “set forth specific facts that 23 show a genuine issue for trial.” Id. (internal quotation omitted). A moving party without 24 the ultimate burden of persuasion at trial “must either produce evidence negating an 25 essential element of the nonmoving party’s claim or defense or show that the nonmoving 26 party does not have enough evidence of an essential element to carry its ultimate burden of 19 1 persuasion at trial.” Nissan Fire & Marine Ins. Co., Ltd. v. Fritz Cos., Inc., 210 F.3d 1099, 2 1102 (9th Cir. 2000). The Court views all evidence in the light most favorable to the 3 non-moving party. Leisek, 278 F.3d at 898. 4 III. DISCUSSION 5 Section 5 of the FTC Act prohibits “deceptive acts or practices in or affecting 6 commerce.” 15 U.S.C. § 45(a). The FTC enacted the Telemarketing Sales Rule (“TSR”) as 7 a result of a directive from Congress to “prescribe rules prohibiting deceptive telemarketing 8 acts or practices and other abusive telemarketing acts or practices.” 15 U.S.C. § 1602(a)(1). 9 Any violation of the TSR constitutes an unfair and deceptive act or practice in violation of 10 Section 5 of the FTC Act. 15 U.S.C. § 57a(d)(3), § 6102(c)(b). The TSR includes a 11 “business-to-business exemption” that exempts from its requirements “[t]elephone calls 12 between a telemarketer and any business, except calls to induce the retail sale of nondurable 13 office or cleaning supplies.” 16 C.F.R. § 310.6(b)(7). 14 A. The Business-To-Business Exemption to the TSR 15 PBS contends the plain language of the business-to-business exemption to the 16 TSR exempts PBS from its requirements because PBS only calls businesses. Additionally, 17 PBS contends the FTC’s interpretation of the TSR–that the exemption depends on whether 18 a telemarketer sells to the business rather than an individual–is unworkable and unfair 19 because it would depend on whether the person answering the phone was listening on 20 behalf of the business or as an individual. PBS contends due process prohibits the FTC 21 from reading in a specialized, non-intuitive meaning, leaving businesses to guess at the 22 scope of the law and the legality of their conduct. 23 The FTC contends PBS does not qualify for the business-to-business exemption 24 to the TSR because they are selling magazines to individual consumers, not businesses. 25 Specifically, FTC argues PBS is a “seller” and “telemarketer” engaged in “telemarketing” 26 to “customers” as those terms are defined by the TSR. The purpose of the exemption, the 20 1 FTC contends, is to generate transactions between businesses. The FTC argues that 2 interpreting the exemption as PBS suggests would produce an absurd result by protecting 3 consumers from deceptive and abusive calls only if they are called at home. Furthermore, 4 the FTC argues its interpretation of the business-to-business exemption is consistent with 5 the industry usage of the term, the FTC’s published regulatory intent, and congressional 6 intent. 7 The contains a business-to-business exemption which exempts calls between a 8 telemarketer and a “business.” 16 C.F.R. § 310.6(b)(7). The TSR defines seller, 9 telemarketer, and customer. The TSR does not, however, define “business,” and no court 10 11 has addressed what “business” means in the context of the TSR exemption. As a general interpretive principle, the Court looks to the plain meaning of the 12 regulation and ends its inquiry there if the language is clear. Safe Air For Everyone v. 13 Envtl. Prot. Agency, 488 F.3d 1088, 1097 (9th Cir. 2007). “A regulation should be 14 construed to give effect to the natural and plain meaning of its words.” Bayview Hunters 15 Point Comm. Advocates v. Metro. Trans. Comm’n, 366 F.3d 692, 698 (9th Cir. 2004) 16 (quotation omitted). “The plain language of a regulation, however, will not control if 17 clearly expressed administrative intent is to the contrary or if such plain meaning would 18 lead to absurd results.” Safe Air, 488 F.3d at 1097 (quotation and alteration omitted). 19 Administrative intent is determined by looking to the published notices of the 20 administrative agency. Id. at 1097-98. In sum, the plain meaning of a regulation governs 21 “when such a meaning is apparent, not absurd, and not contradicted by the manifest intent 22 of [the agency].” Safe Air, 488 F.3d at 1100. 23 PBS is not exempted from the TSR’s requirements when it solicits consumers at 24 their place of employment simply because PBS is calling a business number. Under a 25 natural and plain reading of the exemption, a telemarketer is exempt when it solicits a 26 business regarding purchases on behalf of the business. Interpreting the regulation as PBS 21 1 suggests would produce an absurd result in that consumers would be protected at home but 2 not at work. Moreover, it is not unduly burdensome or unfair to require telemarketers to 3 ask, at the outset of the call, for the person responsible for purchases on behalf of the 4 business. Such a protocol would have been particularly easy here as the “lead” cards PBS 5 receives from Dun & Bradstreet include the name of the business’s manager or owner. 6 The Court need look at the published notices of the administrative agency only 7 to determine if the Court’s interpretation is clearly contrary to the intent of the 8 administration. The Court’s interpretation is consistent with the administrative agency’s 9 intent, as well as congressional intent to protect consumers from abusive telemarketing 10 practices. See Notice of Proposed Rulemaking, 67 Fed. Reg. 4492 (January 30, 2002); 15 11 U.S.C. §§ 6101-02. Soliciting an individual consumer while they are at work is at least as 12 abusive, if not more so, than when they are at home. The FTC provides numerous examples 13 of consumers who complained that PBS attempted to sell them magazines and collect 14 money while the consumer was busy at work. One consumer states that the numerous 15 phone calls from PBS at her work caused problems with her employer. The limited scope 16 of the exemption is apparent, to exclude only telemarketing calls to businesses for business 17 purchases. Accordingly, for the reasons set forth above, the Court finds PBS is subject to 18 the TSR’s requirements. 19 B. The Federal Trade Commission Act & Telemarketing Sales Rule 20 PBS contends it does not violate Section of 5 of the FTC Act or the TSR because 21 it clearly discloses the purpose of the call, truthfully represents all material terms including 22 the total cost of the magazines and how PBS collects payments, and strictly limits the 23 number of times a consumer may be contacted. PBS contends its qualification questions at 24 the beginning of the call are proper because they are intended to ensure PBS is in 25 compliance with the law. As for comments such as “we have a small surprise for you,” 26 “with our best wishes,” “monthly honor plan,” and “customers are not being asked to buy a 22 1 cash subscription,” PBS argues the statements are non-material and thus not regulated by 2 the FTC Act. PBS contends it never represents that the magazines are free or a gift, and a 3 representation does not become false and deceptive merely because a statistically 4 insignificant and unrepresentative segment of disgruntled consumers unreasonably 5 misunderstood it.11 Moreover, a customer who fixates on the non-material representations 6 and disregards statements about cost and payment, PBS contends, is not acting reasonably. PBS also contends its company policy expressly forbids employees from 7 8 deviating from the script, engaging in harassing or abusive conduct, or threatening 9 customers. PBS argues that even if the Court finds some of PBS’s employees engaged in 10 deceptive conduct, the FTC has not proven that PBS reaped the monetary benefits of the 11 alleged misconduct because a large majority of complaining customers never paid PBS any 12 money.12 Finally, PBS contends the verification recordings discredit many of the FTC’s 13 consumer declarations and show that PBS discloses all material terms to the customer. The FTC contends that PBS’s actions violate Section 5 of the FTC Act because 14 15 PBS makes numerous misrepresentations in the initial call and subsequent communications. 16 Additionally, the FTC contends PBS is in violation of the TSR for (1) failing to disclose the 17 seller’s identity and purpose truthfully, (2) misrepresenting the total cost of the magazines, 18 (3) making false and misleading statements to induce consumers to pay for magazine 19 subscriptions, and (4) engaging in a pattern of threatening and abusive phone calls. The 20 FTC contends PBS misrepresents the purpose of its initial contact with customers by asking 21 22 23 24 25 26 11 PBS also contends the consumer declarations include inadmissible hearsay; however, the Court previously overruled this objection (Order on PBS’s Mot. to Strike FTC’s Summ. J. Mot. (Doc. #123).) Thus, the Court will not address it again here. 12 Whether PBS received any monetary benefit from the misrepresentations is not necessary to establish a Section 5 violation. F.T.C. v. Freecom Communications, Inc., 401 F.3d 1192, 1203 (10th Cir. 2005); Novartis Corp. v. F.T.C., 223 F.3d 783, 787 n.3 (D.C. Cir. 2000). 23 1 the potential customer if they would answer a few questions and telling consumers they 2 have a “small surprise” for them and there is “no catch involved.” Although the dollar 3 amounts provided in PBS’s scripts may be literally true, the FTC argues that the net 4 impression of the sales call is that customers will receive free magazines upon payment of 5 nominal shipping and handling fees. The FTC also contends that PBS targets consumers 6 who are distracted and busy with their own customers. The FTC contends in the 7 verification recordings that the verifiers often fail to make the material disclosures by 8 deviating from the script and failing to answer consumer questions clearly. The FTC argues 9 that the verification recording and the ten day internal control period are illusory safeguards 10 that do not cure the misrepresentations PBS employees make in their lead call. The FTC contends that in subsequent communications, PBS misrepresents to 11 12 consumers that they have entered into binding contracts and that consumers’ orders cannot 13 be cancelled because PBS already has submitted orders to the publishers for five year 14 subscriptions when PBS has not done so. The FTC also argues that in the collections 15 communications, PBS threatens its consumers with additional misrepresentations, including 16 a collection letter implying that PBS has a “legal department.” Finally, the FTC contends the Court should disregard PBS’s argument that most 17 18 of PBS’s customers are satisfied because the evidence shows that PBS’s consumers who did 19 not complain or cancel their orders were nonetheless dissatisfied with PBS’s sales 20 techniques. The FTC argues that PBS’s actual business practices do not conform to the 21 business policies described in its Motion, as PBS does not fire employees for failing to 22 follow the company’s policies. Moreover, the FTC contends PBS is liable for its 23 employees’ misrepresentations even if the employees’ actions are contrary to PBS’s official 24 policy. 25 /// 26 To establish a Section 5 violation, the FTC must show the representation, 24 1 omission, or practice is (1) “likely to mislead consumers acting reasonably under the 2 circumstances (2) in a way that is material.” F.T.C. v. Cyberspace.Com LLC, 453 F.3d 3 1196, 1199 (9th Cir. 2006). The representation may be either implied or express. F.T.C. v. 4 Figgie Int’l Inc., 994 F.2d 595, 604 (9th Cir. 1993). Additionally, any violation of the TSR 5 constitutes an unfair and deceptive act or practice in violation of Section 5 of the FTC Act. 6 15 U.S.C.§ 57a(d)(3), § 6102(c)(b). “[U]nder the FTC Act, a principal is liable for the 7 misrepresentations of his agent acting within the scope of the agent’s actual or apparent 8 authority.” F.T.C. v. Stefanchik, 559 F.3d 924, 930 (9th Cir. 2009). 9 To determine whether a representation, omission, or practice is likely to mislead, 10 the Court considers the overall net impression the representation creates. Cyberspace.Com, 11 453 F.3d at 1200. Thus, a representation may amount to a Section 5 violation where the 12 representation is literally true, if the overall net impression is likely to mislead. Id. As to 13 the reasonable person determination, courts generally have limited the inquiry to the 14 relevant audience. See Floersheim v. F.T.C., 411 F.2d 874, 877 (9th Cir. 1969) (noting the 15 Commissioner did not find the collection form’s disclaimer sufficient where the target 16 consumer was often of low income with minimal formal education); Removatron Int’l Corp. 17 v. F.T.C., 884 F.2d 1489, 1497 (1st Cir. 1989) (finding the target consumer is not limited to 18 the beauty industry because Removatron advertised in local print media as well). 19 Although empirical consumer survey evidence is desirable, it is not, as a matter 20 of law, required to support a Section 5 violation, where the deception is “self-evident.” 21 F.T.C. v. Brown & Williamson Tobacco Corp., 778 F.2d 35, 40 (D.C. Cir. 1985). “[W]hen 22 the alleged deception rises to ‘a commonplace,’ a court may itself find the deception ‘self- 23 evident.’” Id. at 41 (quoting Zauderer v. Office of Disciplinary Counsel of Sup. Ct. of 24 Ohio, 471 U.S. 626, 652-53 (1985); see also Floersheim, 411 F.2d at 877 (holding proof of 25 actual deception or capacity to deceive is not essential)). However, “[a] representation does 26 not became ‘false and deceptive’ merely because it will be unreasonably misunderstood by 25 1 an insignificant and unrepresentative segment of the class of persons to whom the 2 representation is addressed.” Cliffdale Assocs., Inc., 103 F.T.C. 110, 175 (1984). 3 In Kraft, Inc. v. Federal Trade Commission, the United States Court of Appeals 4 for the Seventh Circuit found that although Kraft’s representation that it used five ounces of 5 milk in making each Kraft single was literally true, the implied representation that each 6 Kraft single was equivalent to five ounces of milk was false, as the average consumer 7 would not know that roughly thirty percent of the calcium was lost during processing. 970 8 F.2d 311, 322 (7th Cir. 1992). In Removatron International Corp. v. Federal Trade 9 Commission, the First Circuit found that, although Removatron never represented that its 10 machine could permanently remove hair one hundred percent of the time, by representing 11 that it could effectively remove hair permanently, and comparing it favorably to 12 electrolysis, Removatron created the net impression that the machine would “permanently 13 remove hair for most people most of the time.” 884 F.2d 1489, 1497 (1st Cir. 1989). The 14 Court thus held that there was substantial evidence to support the Commission’s finding 15 that Removatron’s representations were misleading, as the effectiveness of the hair removal 16 machine was not reasonably supported by scientific evidence. Id. at 1498. 17 A representation, omission, or practice “is material if it involves information that 18 is important to consumers and, hence, likely to affect their choice of, or conduct regarding, 19 a product.” Cyberspace.Com, 453 F.3d at 1201 (internal quotation omitted). In 20 Cyberspace.Com, the defendants mailed solicitations offering internet access by sending a 21 check, usually for $3.50, attached to a form resembling an invoice. Id. at 1198. The Court 22 found the representations material because “the misleading impression the solicitation 23 created-that the check was merely a refund or rebate-clearly made it more likely that 24 consumers would deposit the check and thereby obligate themselves to pay a monthly 25 charge for the internet service.” Id. at 1201. 26 The TSR requires the telemarketer to “disclose truthfully, promptly, and in a 26 1 clear and conspicuous manner . . .[t]hat the purpose of the call is to sell goods or services.” 2 16 C.F.R. § 310.4(d). The TSR prohibits a telemarketer to misrepresent, directly or by 3 implication, the total cost of the goods, or to make a “false or misleading statement to 4 induce any person to pay for goods or services . . .” 16 C.F.R. § 310.3(a)(2) & 5 § 310.3(a)(4). The TSR further prohibits a telemarketer from engaging in a pattern of 6 abusive calls including “[c]ausing any telephone to ring, or engaging any person in 7 telephone conversation, repeatedly or continuously with intent to annoy, abuse, or harass 8 any person at the called number.” 16 C.F.R. § 310.4(b)(1)(i). 9 10 1. Initial & Verification Calls Viewing the facts in the light most favorable to PBS on the FTC’s Motion, no 11 material question of fact remains that PBS’s initial and verification calls are in violation of 12 the FTC Act and the TSR. In the initial call, PBS begins by asking the consumer if they 13 will answer a few questions and in return PBS has a “small surprise, nothing big but it’s 14 nice.” The “surprise” is PBS is selling magazine subscriptions; however, PBS does not 15 promptly disclose its purpose in a clear and conspicuous manner. Instead, the PBS 16 representative tells the consumer “there is no catch involved” and there is a “sound business 17 reason” because the magazines’ advertisers want to be assured their ads will be read. The 18 PBS script indicates the consumers’ information is being collected for PBS’s advertisers, 19 however, PBS admittedly does not provide any information to the magazine advertisers. 20 Next, the PBS representative informs the consumer she is not asking the consumer to “buy 21 any cash subscriptions,” she is only asking the consumer to “thank us in return by helping 22 to defray the cost of getting them out to you,” thus suggesting the consumer is paying only 23 for shipping and handling, not the cost of the subscription. Although the “cost” is 24 approximately seven hundred dollars, PBS initially represents the cost as only two dollars 25 and seventy-six cents a week. Further, while the initial represented price of two dollars and 26 seventy-six cents is accurate, it is misleading because PBS does not collect the payment 27 1 weekly or even monthly. Rather, the PBS representative making the initial call tells the 2 consumer that “most people send it in two months at a time.” When the consumer is 3 transferred to the supervisor to confirm some information, the supervisor informs the 4 consumer that the initial suggestion to pay doubled-up monthly payments is made a term of 5 the agreement. 6 Likewise, the verification call begins by thanking the consumer for doing the 7 survey and asking the consumer if he or she would consent to having their information 8 verified on tape. The verifier subsequently adds an additional term to the agreement, 9 informing the consumer that the order cannot be cancelled. Albeit true that by the end of 10 the verification call PBS has informed the consumer of all the terms of the agreement, the 11 way in which PBS selectively discloses the material terms throughout the various calls, 12 prefaces subsequent calls by informing the consumer PBS is just confirming information, 13 and then adding new required terms is likely to mislead. 14 PBS contends the FTC’s evidence is insufficient to establish PBS’s 15 representations are misleading because, based on PBS’s First Payment coupons, the number 16 of charge backs, and the percentage of consumer complaints PBS and other agencies 17 received, the majority of PBS consumers are satisfied. PBS contends that the FTC does not 18 provide any legitimate survey evidence to rebut this fact. However, where the Court finds 19 the deception “self-evident,” the FTC need not establish that a majority of PBS consumers 20 were misled, nor does it need to provide empirical survey evidence that the representation 21 has a capacity to deceive a majority of consumers. Furthermore, the FTC presents 22 supporting evidence from consumers and former PBS employees. Thus, the Court need not 23 rely only on its own interpretation of PBS’s representations. 24 The FTC presents declarations from numerous consumers who believed the 25 initial conversation represented the entire agreement–that the offer was either free or for a 26 nominal amount, and that there was no long-term obligation or no obligation at all. 28 1 Consumers also reported being confused by the terms of the offer because the PBS 2 employee was speaking rapidly. A number of consumers state they did not believe they 3 were agreeing to accept magazines or to make any payments, but instead were agreeing to 4 receive written materials on the offer. 5 The FTC also presents declarations from former PBS employees who state they 6 were instructed to speak rapidly, evade consumer questions, and encouraged to deviate from 7 the script. PBS argues these practices are against company policy and that PBS strictly 8 enforces and monitors what PBS employees represent to consumers. However, the 9 undisputed “bad tapes reports” of four verifiers, who were listed as current PBS employees 10 as of 2008, demonstrates PBS employees engaged in repeated misconduct over an extended 11 period of time, and PBS either did not strictly enforce its policies or even encourage such 12 conduct. Moreover, PBS does not provide a single declaration of one of its employees to 13 rebut the assertions made by former PBS employees. Instead PBS relies on the individual 14 Defendants’ assertions that such conduct is against PBS’s company policy. 15 PBS’s representations are material because the net impression has a tendency to 16 mislead the consumer into agreeing to a long-term obligation to pay PBS hundreds of 17 dollars. With respect to the reasonable person determination, the relevant audience is the 18 person who is responsible for answering the phone at a business, as PBS admits it does not 19 instruct its employees to ask for the person responsible for purchases on behalf of the 20 business. PBS disputes that it targets certain types of employees. However, former 21 employees state they were more successful selling to stores with employees who were busy 22 with their own customers and too distracted to listen carefully, and numerous consumers 23 state they were busy at work and distracted when the PBS representative called. 24 PBS contends that a consumer who agrees to the terms without listening carefully 25 is not acting reasonably under the circumstances. PBS’s contention presumes, however, 26 that the consumer is aware they are agreeing to terms to which they will later be held. Even 29 1 if, as PBS suggests, the consumer listened carefully, and notwithstanding PBS’s selective 2 disclosure of material terms, there is undisputed evidence that PBS employees speak 3 quickly, deviate from the script, and evade consumer questions. Besides bare assertions, 4 PBS presents no evidence that employees are reprimanded for such conduct. 5 Viewing the facts in the light most favorable to PBS, the Court finds no question 6 of material fact remains that in the initial and verification calls, while some of PBS’s 7 representations may be literally true, the net impression of the representations is likely to 8 mislead a consumer acting reasonably under the circumstances in a way that is material. 9 Accordingly, the Court finds PBS is in violation of Section 5 of the FTC Act and the TSR 10 with respect to its initial and verification calls. The Court therefore will grant the FTC’s 11 Summary Judgment Motion on counts one, three, and four with respect to the initial 12 communications, and deny PBS’s Motion for Summary Judgment on counts one, three, and 13 four with respect to the initial communications. 14 15 2. Subsequent Communications Viewing the facts most favorable to PBS on the FTC’s Motion, no question of 16 material fact remains that PBS’s subsequent communications violate Section 5 of the FTC 17 Act and the TSR. 18 PBS makes at least two undisputed misleading representations to induce 19 payment. When consumers call to cancel, a PBS customer service agent represents to the 20 consumer that they cannot cancel because PBS already has put in the full order with the 21 publisher. Dirk Dantuma admits PBS representatives do not inform consumers that in some 22 cases the entire five year subscription has not been pre-paid. PBS contends the 23 representation that the full order has been processed when in fact representatives at some 24 point will have to renew the subscription with the publishers is immaterial and irrelevant 25 because PBS has no duty to inform consumers of the terms of its agreement with the 26 magazine publishers. PBS’s argument, however, does not diminish the misleading nature of 30 1 PBS’s statement that the consumer cannot cancel because the order already has been placed, 2 thereby inducing the consumer to pay for the full five year subscription. 3 Additionally, PBS sends a collection letter representing the sender as part of 4 PBS’s legal department when PBS admits it has no such department and never initiates 5 legal proceedings against consumers with delinquent accounts. Although the letter does not 6 explicitly state PBS will commence legal proceedings against the consumer for failure to 7 pay, the net impression of the letter is that PBS has a legal department and legal action is a 8 possibility. Both representations are false and induce the consumer to pay PBS for the 9 magazine subscriptions to avoid legal or other action. 10 With respect to the FTC’s claim that PBS engages in a pattern of abusive calling 11 with intent to annoy, abuse, or harass, the FTC presents evidence from consumers that PBS 12 called the consumers repeatedly even after they asked PBS to stop. A number of consumers 13 also state that PBS agents threatened them. Although the FTC does not present evidence 14 from PBS collections agents admitting they engaged in this type of misconduct, the FTC 15 presents evidence from former PBS employees that in the initial and verification calls, the 16 employees were instructed to, or at least not reprimanded for, calling the consumer 17 repeatedly even when the consumer said they were not interested. 18 Admittedly, the FTC does not present the same kind of compelling evidence of 19 PBS’s failure to enforce the stated company policy prohibiting harassing phone calls as the 20 FTC presented with respect to PBS employees making repeated misleading representations 21 in the verification call. Nevertheless, that PBS fails to enforce company policy with respect 22 to its verification employees at least suggests it approaches its collections employees with 23 the same disregard. PBS also engages in other misrepresentations in their collections 24 efforts, as discussed above. Furthermore, besides the bare assertion that repeated and 25 threatening phone calls are against company policy, PBS presents no evidence from PBS 26 employees that they did not engage in this type of misconduct. Nor does PBS present any 31 1 evidence of specific employees that were fired for engaging in such misconduct. PBS’s 2 assertions that its official policy prohibits harassment does not raise a genuine issue of 3 material fact that PBS’s de facto policy was to engage in harassing collections efforts. Accordingly, viewing the facts in the light most favorable to PBS, no question of 4 5 material fact remains that PBS’s subsequent communications are in violation of Section 5 of 6 the FTC Act and the TSR. The Court therefore will grant the FTC’s Summary Judgment 7 Motion on counts five and six with respect to the initial communications, and deny PBS’s 8 Motion for Summary Judgment on counts five and six with respect to the initial 9 communications. 10 C. Damages 11 The FTC seeks a permanent injunction prohibiting PBS and the individual 12 Defendants from engaging in telemarketing and the sale of magazines. The FTC contends a 13 permanent injunction is proper in this case because Defendants have demonstrated an 14 unwillingness to change their magazines sales practices to comply with the law. The FTC 15 also seeks monetary restitution for consumers injured by Defendants. The FTC measures 16 the restitution as the full amount of the purchase price or payment less any refunds, which 17 equals approximately forty million dollars. PBS argues, notwithstanding its contention that it is not in violation of the FTC 18 19 Act or subject to the TSR, that any evaluation of damages is improper on summary 20 judgment. PBS contends an assessment of damages must be determined at an evidentiary 21 hearing because there is a lack of correlation between the FTC’s demand of PBS’s gross 22 revenue less refunds and the less than one percent of total consumer complaints lodged 23 against PBS. Additionally, PBS argues the FTC’s assessment of damages includes conduct 24 beyond the applicable three year statute of limitations pursuant to Section 19(d) of the FTC 25 Act. 26 Section 13(b) of the FTC Act provides “that in proper cases the Commission may 32 1 seek, and after proper proof, the court may issue, a permanent injunction.” 15 U.S.C. 2 § 53(b). To obtain consumer redress against an individual subject to injunctive relief under 3 Section 13, the FTC must establish “proof of injury caused by those practices” and “the 4 relief must be necessary to redress the injury.” Figgie Int’l, 994 F.2d at 605 (citing 15 5 U.S.C. § 57(b)). Additionally, “[n]o action may be brought by the Commission under this 6 section more than 3 years after the rule violation . . . or the unfair or deceptive act or 7 practice to which an action” relates. 15 U.S.C. § 57b(d). The Court will enter a permanent injunction coterminously with this Order. The 8 9 FTC also requests significant monetary relief. The parties, however, focus their briefs on 10 summary judgment on the merits rather than on relief. The Court concludes an evidentiary 11 hearing is warranted to fully evaluate the appropriate monetary relief, if any, to award. 12 IV. CONCLUSION IT IS HEREBY ORDERED that the Federal Trade Commission’s Motion for 13 14 Summary Judgment (Doc. #86) is hereby GRANTED on all counts and a permanent 15 injunction will be entered coterminously with this Order. IT IS FURTHER ORDERED that Publisher Business Services’ Motion for 16 17 Summary Judgment (Doc. #99) is hereby DENIED on all counts. IT IS FURTHER ORDERED that counsel for the parties shall appear on May 18, 18 19 2010 at 9:30 a.m. in Courtroom 7C, in the United States District Court, District of Nevada, 20 located at 333 S. Las Vegas Blvd., Las Vegas, Nevada, 89101, for an evidentiary hearing on 21 the issue of damages to be awarded, if any. 22 /// 23 /// 24 /// 25 /// 26 33 1 IT IS FURTHER ORDERED the FTC shall file an opening brief on the issue of 2 damages by April 20, 2010. PBS shall file a response brief by April 30, 2010. The FTC 3 shall file a reply brief by May 7, 2010. No brief shall exceed ten (10) pages in length. 4 5 DATED: April 7, 2010. 6 7 8 _______________________________ PHILIP M. PRO United States District Judge 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 34
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