MIRANDA M. DU, District Judge.
Before the Court are Plaintiff Federal Trade Commission's ("FTC") Motion for Summary Judgment Against All Corporate Liability Defendants ("Motion") (dkt. nos. 1235, 1280) and Motion For Summary Judgment Against All Individual and Relief Defendants ("Individual Liability Motion") (dkt. nos. 1278, 1279). Also before the Court is Relief Defendants' Motion for Partial Summary Judgment ("MPSJ") (dkt. no. 1284). For the reasons set out below, the Motion is granted in part and denied in part. The Individual Liability Motion and the MPSJ are denied without prejudice to renew. The Court will set a status conference to address the effect of this Order on the remaining issues raised in the parties' motions and the process for the Court's consideration of these issues.
Plaintiff FTC brought this suit on December 21, 2010, against Defendants Jeremy Johnson, Loyd Johnston, Ryan Riddle, numerous other individuals, and numerous corporate entities, including I Works, Inc. ("IWorks"), alleging that Defendants engaged in deceptive and unfair business activities on the Internet. The Amended Complaint alleges that Defendants, in essence, made misrepresentations and deceptively enrolled consumers into memberships for their products, and then charged consumers' credit cards or debit accounts for said memberships without authorization. (See dkt. no. 830.)
The Amended Complaint alleges the following facts. Defendants used websites to offer "free or risk-free" information about Defendants' products or programs, including government grants to pay personal expenses and Internet-based money-making opportunities with Google "Adwords." The government grant sites contained testimonials that gave the false impression that consumers would likely get the same results from the products or programs as the people in the testimonials. The websites asked consumers to fill out a form and provide their credit card or bank account information to pay for the shipping and handling of a CD with information on Defendants' products or programs. The websites' disclosures often stated that consumers were actually being enrolled in negative option membership plans and upsells bundled with the core product. The negative option plans would charge an initiation fee and recurring monthly fees for a membership. The upsells would also contain separate and recurring monthly fees.
The following counts are asserted in the Amended Complaint pursuant to Section 5(a) of the FTC Act, 15 U.S.C. § 45(a): (Count I) misrepresenting the availability of government grants to pay personal expenses; (Count II) misrepresenting that consumers using Defendants' grant product are likely to find government grants to pay personal expenses; (Count III) misrepresenting
The Amended Complaint also asserts a count pursuant to Section 907(a) of Electronic Fund Transfer Act ("EFTA"), 15 U.S.C. § 1693e(a), and Section 205.10(b) of Regulation E, 12 C.F.R. § 205.10(b): (Count X) Defendants debited consumers' bank accounts on a recurring basis without obtaining written authorization.
Finally, the FTC asks for disgorgement of funds or value of benefits received in Count XI.
The FTC moves for summary judgment as to the corporate defendants in the Motion (dkt. nos. 1235, 1280) and the individual defendants in the Individual Liability Motion (dkt. nos. 1278, 1279).
An opposition to the Motion was filed collectively by the majority of corporate defendants (dkt. no. 1343). Oppositions to the Motion were also filed separately by Loyd Johnston (dkt. no. 1346), Andy Johnson (dkt. no. 1347), Ryan Riddle (dkt. no. 1352), and Jeremy Johnson (dkt. no. 1351). The FTC filed a reply. (Dkt. no. 1387.) As to the Individual Liability Motion, oppositions were filed by the relief defendants (dkt. no. 1344), Loyd Johnston (dkt. no. 1346), Andy Johnson (dkt. no. 1347), and Scott Leavitt and Employee Plus, Inc. (dkt. no. 1358). The FTC filed a reply. (Dkt. no. 1386.)
The filings by Loyd Johnston and Andy Johnson consist of two paragraphs each and are merely brief statements of opposition. (Dkt. nos. 1346, 1347.) There are also non-substantive joinders to the various oppositions filed by other defendants. (Dkt. nos. 1348, 1349, 1350.)
The Relief Defendants also filed a Motion for Partial Summary Judgment as to the disgorgement claim in Count XI. (Dkt. no. 1284.) In their motion, the Relief Defendants argue that the FTC has failed to demonstrate that they did not have legitimate claims to the challenged assets. (Id.) The FTC filed an opposition (dkt. no. 1335) and the Relief Defendants filed a reply (dkt. no. 1384). The FTC presents its affirmative argument as to Relief Defendants' disgorgement of assets in its Individual Liability Motion. (Dkt. no. 1279.) The Relief Defendants thus challenge disgorgement in both their opposition to the Individual Liability Motion and their MPSJ. (Dkt. no. 1284 at 3.)
In order to reach the issues of individual liability and disgorgement raised in the Individual Liability Motion and the MPSJ, the Court must first determine whether any violation of the FTC Act and EFTA actually occurred. The FTC's Motion (dkt. no. 1280) presents the FTC's arguments as to why there are no genuine issues of material fact as to the Amended Complaint's alleged violations of the FTC Act and EFTA. Therefore, in determining whether the websites at issue violated the FTC Act and EFTA, the relevant filings are the Motion (dkt. no. 1280), the Corporate Defendants' opposition (dkt. no. 1343), Ryan Riddle's opposition (dkt. no. 1352),
The Court held a hearing on the Motion, the Individual Liability Motion, and the MPSJ on October 16, 2014. (Dkt. no. 1536.)
The FTC has provided over one-hundred exhibits of grant websites. For the most part, each exhibit consists of several pages of images. The images are captured through various methods, including images received from the Better Business Bureau, from Defendants' brokers, from Defendants themselves and the FTC's own undercover investigations. The FTC also provides an expert report from Dr. Nathaniel Good, who analyzed 125 websites provided to him by the FTC and gave his opinion as to the consumer experience. (Dkt. no. 1261-9, Good Report, Exh. 1418.) It is not clear from the record, however, which sites were reviewed by Dr. Good and the source of those sites. The FTC states that it filed the sites that Dr. Good relied upon as "GR" exhibits, but the "GR" designation was only for exhibits that had not already been presented to the Court. (Dkt. no. 1280 at 4 n. 8.) It is therefore not apparent which of the many exhibits already presented to the Court were reviewed by Dr. Good before making his report.
Defendants' counsel stated at the October 16, 2014, hearing that the sites presented by the FTC are a drop in the bucket compared to the full extent of website variations employed. Defendants provide a report from their expert Dr. Robert Vigil, which states that the sample provided by the FTC is not statistically significant because IWorks, its affiliates, and its brokers "used hundreds (or possibly thousands)" of different pages to sell their products. (Dkt. no. 1262-1, Vigil Report, Exh. 1426.) Dr. Vigil states that his understanding of the reason for the large amount of different pages is that Defendants' individual affiliates engaged in "multivariate testing," in which live websites were repeatedly changed to determine which changes increased purchases. (Id.) Defendants argue that they are not liable for the websites of these affiliates. (Dkt. no. 1343 at 47.)
The FTC argues that the sites presented to the Court are all that are available and asks the Court to draw conclusions as to all of Defendants' sites, presented to the Court or not, based on the exhibits presented and Dr. Good's report.
Given the breadth of this case, its complexity, the unique way in which Defendants' affiliates marketed and tested their websites, and various other reasons further explored below, the Court determines that it is appropriate to address summary judgment in a series of stages. This Order will examine a group of website examples presented to the Court and determine whether they are deceptive or unfair under the FTC Act and the EFTA. The Court will then determine the effect of this Order on the remaining claims.
The purpose of summary judgment is to avoid unnecessary trials when there is no dispute as to the facts before the court. Nw. Motorcycle Ass'n v. U.S. Dep't of Agric., 18 F.3d 1468, 1471 (9th Cir.1994) (citation omitted). Summary judgment is appropriate pursuant to Fed. R.Civ.P. 56 when the pleadings, the discovery and disclosure materials on file, and any affidavits "show there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Celotex Corp. v. Catrett, 477 U.S. 317, 330, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) (citation omitted). An issue is "genuine" if there is a sufficient evidentiary
The moving party bears the burden of showing that there are no genuine issues of material fact. Zoslaw v. MCA Distrib. Corp., 693 F.2d 870, 883 (9th Cir.1982) (citation omitted). "In order to carry its burden of production, the moving party must either produce evidence negating an essential element of the nonmoving party's claim or defense or show that the nonmoving party does not have enough evidence of an essential element to carry its ultimate burden of persuasion at trial." Nissan Fire & Marine Ins. Co., Ltd. v. Fritz Cos., Inc., 210 F.3d 1099, 1102 (9th Cir.2000) (citation omitted). Once the moving party satisfies Rule 56's requirements, the burden shifts to the party resisting the motion to "set forth specific facts showing that there is a genuine issue for trial." Anderson, 477 U.S. at 256, 106 S.Ct. 2505. The nonmoving party "may not rely on denials in the pleadings but must produce specific evidence, through affidavits or admissible discovery material, to show that the dispute exists," Bhan v. NME Hosps., Inc., 929 F.2d 1404, 1409 (9th Cir.1991), and "must do more than simply show that there is some metaphysical doubt as to the material facts." Orr v. Bank of Am., NT & SA, 285 F.3d 764, 783 (9th Cir.2002) (internal citations omitted). "The mere existence of a scintilla of evidence in support of the plaintiff's position will be insufficient." Anderson, 477 U.S. at 252, 106 S.Ct. 2505.
Counts I through VIII of the Amended Complaint allege deceptive acts or practices in violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a).
An act or practice is deceptive if: (1) there is a representation, omission, or practice; (2) that is likely to mislead consumers acting reasonably under the circumstances; and (3) the representation, omission, or practice is material. FTC v. Stefanchik, 559 F.3d 924, 928 (9th Cir. 2009) (citation omitted). Deception may be found based on the "net impression" created by a representation. FTC v. Cyberspace.com LLC, 453 F.3d 1196, 1200 (9th Cir.2006). The FTC is not required to show that all consumers were deceived, and the existence of satisfied consumers does not constitute a defense. See Stefanchik, 559 F.3d at 929 (citing FTC v. Figgie Int'l, Inc., 994 F.2d 595, 605-06 (9th Cir. 1993); FTC v. Amy Travel Serv., Inc., 875 F.2d 564, 572 (7th Cir.1989)).
An advertisement can make both express claims and implied claims. Express claims "are ones that directly state the representation at issue." In re Thompson Med. Co., Inc., 104 F.T.C. 648 (1984), aff'd, Thompson Med. Co. v. FTC, 791 F.2d 189 (D.C.Cir.1986), cert. denied, Thompson Med. Co. v. FTC, 479 U.S. 1086, 107 S.Ct. 1289, 94 L.Ed.2d 146 (1987). Implied claims "are any claims that are not express. They range from claims that would be virtually synonymous with an express claim through language that literally
A solicitation may be likely to mislead by virtue of the net impression it creates even though the solicitation also contains truthful disclosures. Cyberspace.com, 453 F.3d at 1200; see also Donaldson v. Read Magazine, Inc., 333 U.S. 178, 188, 68 S.Ct. 591, 92 L.Ed. 628 (1948) ("Advertisements as a whole may be completely misleading although every sentence separately considered is literally true.") In Cyberspace.com, defendants "mailed approximately 4.4 million solicitations offering internet access to individuals and small businesses." 453 F.3d at 1198. These solicitations "included a check, usually for $3.50, attached to a form resembling an invoice designed to be detached from the check by tearing at the perforated line" and the check "was addressed to the recipient and the recipient's phone number appeared on the `re' line." Id. The portion of the mailing resembling an invoice included columns labeled "invoice number," "account number," and "discount taken." Id. "The back of the check and invoice contained small-print disclosures revealing that cashing or depositing the check would constitute agreement to pay a monthly fee for internet access, but the front of the check and the invoice contained no such disclosures." Id. The Ninth Circuit affirmed the district court's granting of summary judgment for the FTC, finding that the "mailing created the deceptive impression that the $3.50 check was simply a refund or rebate rather than an offer for services." Id. at 1200. The Ninth Circuit agreed with the district court that "no reasonable factfinder could conclude that the solicitation was not likely to deceive consumers acting reasonably under the circumstances." Id. at 1201.
The FTC can prove that a representation is likely to mislead consumers by establishing either: 1) actual falsity of express or implied claims ("falsity" theory); or 2) that the advertiser lacked a reasonable basis for asserting that the message was true ("reasonable basis" theory). FTC v. Pantron I Corp., 33 F.3d 1088, 1096 (9th Cir.1994) (citing Thompson Med., 104 F.T.C. 648); FTC v. John Beck Amazing Profits, LLC, 865 F.Supp.2d 1052, 1067 (C.D.Cal.2012). "For an advertiser to have had a `reasonable basis' for a representation, it must have had some recognizable substantiation for the representation prior to making it in an advertisement." John Beck Amazing Profits, 865 F.Supp.2d at 1067 (citing FTC v. Direct Mktg. Concepts, Inc., 569 F.Supp.2d 285, 298 (D.Mass.2008)). "Defendants have the burden of establishing what substantiation they relied on for their product claims" and the FTC has the burden of establishing that the purported substantiation is inadequate. John Beck Amazing Profits, 865 F.Supp.2d at 1067 (citing FTC v. QT, Inc., 448 F.Supp.2d 908, 959 (N.D.Ill. 2006)). "Where the advertisers lack adequate substantiation evidence, they necessarily lack any reasonable basis for their
As to the final factor, "[a] misleading impression created by a solicitation is material if it `involves information that is important to consumers and, hence, likely to affect their choice of, or conduct regarding, a product.'" Cyberspace.com, 453 F.3d at 1201 (citation omitted). For instance, the Ninth Circuit in Cyberspace.com found that "the misleading impression the solicitation created—that the check was merely a refund or rebate—clearly made it more likely that consumers would deposit the check and thereby obligate themselves to pay a monthly charge for internet service." Cyberspace.com, 453 F.3d at 1201. Express representations about a product are presumed to be material. Pantron I, 33 F.3d at 1096-96 (9th Cir.1994) (citation omitted). Implied representations are material "when they pertain to the central characteristics of the products or services being marketed." John Beck Amazing Profits, 865 F.Supp.2d at 1076 (internal quotation marks and citation omitted); see also In re Cliffdale Associates, 103 F.T.C. 110 (1984) (reprinting FTC Policy Statement on Deception, Oct. 14, 1983). Generally speaking, information is material where it "concerns the purpose, safety, efficacy, or cost, of the product or service." Direct Mktg., 569 F.Supp.2d at 299 (citing Novartis Corp. v. FTC, 223 F.3d 783, 786 (D.C.Cir.2000) (quoting FTC Policy Statement on Deception); In re J.B. Williams Co., 68 F.T.C. 481, 546 (1965), aff'd, 381 F.2d 884 (6th Cir.1967)).
To determine whether Defendants made certain representations or omissions, this Court must first review the websites. This is the first step in the Court's inquiry. Once the Court determines that the representations alleged in Counts I through VIII are present on IWorks' grant websites, the Court will then consider whether they were likely to mislead consumers acting reasonably under the circumstances, and whether the representations are material. See Stefanchik, 559 F.3d at 928.
Immediately the Court is confronted with a problem. As previously mentioned, the FTC has provided over one-hundred exhibits of grant websites and the expert report from Dr. Good. However, for the purposes of summary judgment, the Court cannot rely solely on the representations of the FTC and their expert as to what the websites represent. The Court must review the websites, in a light most favorable to Defendants and draw all inferences in Defendants' favor, in order to understand the representations made and whether the sites create a net impression that is deceptive. The summary judgment standard thus compels the Court to limit the body of website captures that it can review. In its briefing, the FTC picks examples of claims from across its grant website exhibits to suit their arguments. It is not clear to the Court, however, whether the FTC's examples are representative of the grant website experience as a whole. In their exhibit list, the FTC organizes the website images only by source. The Court cannot adopt the FTC's approach of using selected examples of claims picked from across the entire universe of the FTC's exhibits, seemingly without a clear methodology, and draw conclusions as to every one of Defendants' sites. Indeed, the exhibits presented to the Court indicate that the websites were not identical, perhaps due to the "multivariate testing" explained by Dr. Vigil. The parties have not stipulated to a collection of representative sites for the Court to analyze.
Therefore, in analyzing the claims and disclosures made on Defendants' websites
In attempting to describe these sites, the Court's task is difficult. The websites contain significant amounts of text in large and small fonts in different varieties of boldness and capitalization. They also contain a large amount of images, testimonials, and interactive boxes that prompt the user to enter personal information. The sites' claims appear in images of notepads or post-it notes, or are tucked into boxes of text with different headings. However, in order to fairly present the "net impression" of the IWorks' sites, and to understand their effect on a consumer, the Court must endeavor to describe the information delivered to the consumer, and how it is delivered, as they make their way from the landing page to the order page and place their order. Selected images from these sites are also attached to the Order to better illustrate the Court's description. (See attached App. 1-5.)
On April 6, 2009, FTC investigator Jacobson visited a website called "Government Money Secrets" and purchased the Government Money Secrets program. (Dkt. no. 1254-5 ¶ 28.) The "Government Money Secrets" page has questions at the top of the page that ask, "ARE YOU WORRIED about making ends meet? Disappointed with your last pay check? Did you even get a paycheck?" (Dkt. no. 31-3, Exh. 116 at 1.) Beneath those questions it states that "Hope can be had in a Government or Private Grant. Millions are available to those who qualify and claim their portion." Moving down the
The next page captured by Jacobson then boldly proclaims "CONGRATULATIONS! You're on your way to becoming one of the countless people who have already claimed their share of Government Grant Money!" in large letters at the top of the page. (Dkt. no. 31-3, Exh. 116 at 3.) Further down it states in smaller text that "Each day we send out a certain number of our Private and Federal Grant CDs, and You qualify for one! Not only that, but when you learn how to claim Government Grant Money now and . . ." "Instantly access the # 1 Rated Grant Member Site," "Follow the advice in the Express Business Funding Guide," and "Demand your fair share of the Millions of Dollars in Government Grant Money" ". . . you can be well on your way to receiving literally thousands of dollars in unclaimed Government Grant Money[.]" Underneath that is another testimonial titled "Money to Pay Your Business Expenses!" by "Jennifer B" that says "[t]he money went to pay overdue bills. Mainly electric, gas and telephone. I used the left over money for groceries and much needed household supplies. I can't thank you enough for what you did in sending that check. It really came just in the nick of time. I was sitting in my apartment thinking I was going to have to break my lease and further ruin my credit. I received your check in the mail today!" The testimonial is next to a photo of a woman holding a child. Under the testimonial, the site directs users to "Please tell us where to ship your grant program and information." The details requested include name, email, phone, address, city, state, and zip. There is a button that says "CLICK HERE TO GET YOUR CD NOW!!"
The next page captured by Jacobson is the order page itself, which says "Sit back and relax! You can stop worrying about the recession, our Grant Program Software is waiting for you!" (Dkt. no. 31-3, Exh. 116 at 4.) Beneath that heading it says "You can literally breathe a sigh of relief." In smaller text it states, "Your Grant Program will help you seek out funding that can get you the money you need to do the things you want. Upon covering the shipping costs, your Grant Program CD will be processed and sent to you directly. In as little as two weeks from today, you could have a check in your hand." Moving down the page, it says "It's as easy as 1, 2, 3!" and has three steps: "1 Receive your Grant Program 2
The other website images captured by Jacobson include the "Grant Doctor" site visited on June 8, 2009 (dkt. no. 1254-5 ¶ 32; dkt. no. 31-4, Exh. 117), the "Fast Grants" site visited on October 7, 2009 (dkt. no. 1254-5 ¶ 36; dkt. no. 31-5, Exh. 118), the "Federal Grant Connection" site visited on October 28, 2009 (dkt. no. 1254-5 ¶ 43; dkt. no. 31-6, Exh. 119), and the "Grant Seeker Secrets" site visited on November 18, 2009 (dkt. no. 1254-5 ¶ 50; dkt. no. 31-7, Exh. 120). These sites all follow a three-stage structure similar to the "Government Money Secrets" site in that the consumer proceeds through three stages to place an order.
The first stage is the landing page and, as in the first page of the "Government Money Secrets" site, consumers are informed that they may be entitled to grant money if they qualify. These initial pages tell the consumer "You May Qualify for FREE Government Funding" (dkt. no. 31-4, Exh. 117 at 1), "Hope may be had in a Government or Private Grant. Money may already be available for you!" (dkt. no. 31-5, Exh. 118 at 1), "Claim Your Share of the Millions of Dollars in Grant Money Given Away Every Year! You May Have Money Waiting To Be Claimed!" (dkt. no. 31-6, Exh. 119 at 1), "Claim Your Grant Money Today" (id.), "Are You Entitled? Find out today!" (id.), and "Congratulations, You May Qualify for FREE Government Funding (dkt. no. 31-7, Exh. 120 at 1). These pages also inform the consumer that this grant money can be spent on personal expenses, stating "Up to 75% of your rent paid by Uncle Sam" (dkt. no. 31-4, Exh. 117 at 2) "$4,000 cash to pay your mortgage" (id.), "$5,000 free money to fix up your home" (id.) "Money to fix up your car!" (dkt. no. 31-5, Exh. 118 at 1), "$9,500 to pay medical bills" (dkt. no. 31-6, Exh. 119 at 1), and "Purchase Real Estate" (dkt. no. 31-7, Exh. 120). These pages all contain various testimonials, like the ones from "Sharon E" and "Tamara S" from the "Government Money Secrets" site, which indicate that consumers can receive checks in the mail to pay personal expenses. For example, the Grant Doctor site has an image of a check and says "Act fast and you could be holding a check like this one in the palm of your hand within
In the second stage or the intermediary page, as in the second page of the "Government Money Secrets" site, consumers are congratulated, reminded that they may be entitled to grant money, and provided more testimonials. These pages start with "Congratulations! You Are Well On Your Way To Becoming One Of The Countless People Who Have Already Claimed Their Rightful Government Grant Money!" (dkt. no. 31-4, Exh. 117 at 4), "CONGRATULATIONS! You may be on your way to becoming one of the countless people who have already had success with our proven system" (dkt. no. 31-5, Exh. 118 at 3), "Congratulations! You Qualify for a FREE CD!" (dkt. no. 31-6, Exh. 119 at 5) and "Congratulations! You Could Be Well On Your Way To Becoming One Of The Countless People Who Have Already Claimed Their Rightful Government Grant Money" (dkt. no. 31-7, Exh. 120 at 5). The "Grant Doctor," "Fast Grants," and "Grant Seeker Secrets" sites also inform the consumer that they will be able to "Instantly access the # 1 Rated [or "Independently Rated"] Grant Resource Center" in order to receive their grant money. (Dkt. no. 31-4, Exh. 117 at 4; dkt. no. 31-5, Exh. 118 at 3; dkt. no. 31-7, Exh. 120 at 5.) The "Federal Grant Connection" site encourages consumers to use the CD to "Get YOUR Cash" including "$192.3 Billion for Personal Grants!" (Dkt. no. 31-6, Exh. 119 at 5.) Under a box titled "Easy. Free Software" the "Federal Grant Connection" site lists seven items that are presumably benefits of the software, including "Updated downloadable federal grant listings," "Updated searchable database, "Application wizard," and "Unlimited email access to the Specialists at the Grant
The third and final stage is the order page. As in the order page of the "Government Money Secrets" site, consumers are again told that they may qualify for grant money, provided with more testimonials, and asked for their credit card information. These pages tell consumers "You qualify for one of our remaining FREE Grant Doctor Software CDs!" "1 Get our FREE Grant Network Software Kit," "2 Choose from thousands of available grants," and "3 Apply for your FREE MONEY!!" (dkt. no. 314, Exh. 117 at 5), "Only One More Step!" (dkt. no. 31-5, Exh. 118 at 5), "There are over 90,000 Private & Federal Grants Listed! There Was Over 80 Billion Dollars Given Out Last Year!" (id.), "You're Almost Done! Enter your info to get your FREE CD Rushed" (dkt. no. 31-6, Exh. 119 at 7), and "You qualify for one of our remaining Private and Federal Grant CDs!" "1 Get our Free Grant Network Software Kit 2 Choose from and apply for thousands of available grants 3 Upon funding approval, Receive your MONEY!!" (dkt. no. 31-7, Exh. 120 at 7). These pages indicate, in the box to enter credit card information, that consumers will be charged for shipping and handling, stating "Priority Shipping—Only $2.99" (dkt. no. 31-4, Exh. 117 at 5; dkt. no. 31-7, Exh. 120 at 7), listing the cost of all of the programs and products as "$0.00" save for the shipping and handling at "$2.29" (dkt. no. 31-5, Exh. 118 at 5), and prompting "Get Your FREE Software! Shipping $2.29" (dkt. no. 31-6, Exh. 119 at 7). The "Grant Seeker Secrets" order page has a big arrow pointing to the order box that says "START HERE" and other testimonial from "Carol K" that says, ". . . In about 2 weeks I received a check in my hand." (Dkt. no. 31-7, Exh. 120 at 7.) These pages all contain disclosures, either beneath the buttons to submit credit card information or at the top of the page, which state that the consumer is paying for the shipping and handling and also agreeing to enroll in three trial memberships with costs and fees that will be automatically charged if the trial memberships are not cancelled. The order pages contain information about the trial memberships (or "upsells"), referring to them as "FREE BONUS GIFTS!" (dkt. no. 31-4, Exh. 117 at 6), "Free [14-day or 21-day] trial!" (dkt. no. 31-5, Exh. 118 at 4), and "Special Bonus!" (dkt. no. 31-6, Exh. 119 at 7) always at the bottom of the page, but do not refer to the associated monthly fees. These pages further contain testimonials from people claiming they received money in the mail to pay personal expenses.
FTC Investigator Roberto Menjivar visited and printed pages from IWorks websites in October 2008, approximately one year before Jacobson captured the images described above. (Dkt. no. 26 ¶¶ 4-7.) These images include the initial landing pages that ask for basic personal information, such as income and marital status, and order pages that prompt the user to provide their shipping information.
One website Menjivar visited called "Grant Funding Solutions" asks "Will A New President Change The Federal Grant System? Get A Grant Now Before Any Changes Take Place" and beneath CNN ad CNBC logos it says "Congratulations, You May Qualify for FREE Government Funding. CNN and other sources report that the U.S. Government must find recipients in order to distribute financial aid money to organizations and private individuals who qualify and need it!" (Dkt. no. 32-6, Exh. 124.) The site further states that "Millions of Dollars are available now!" and contains testimonials identical to those in the Jacobson sites in which recipients claim that they received money and were able to pay for personal expenses. There are also brief testimonials including statements such as "I received a check in my hand for $100,000" by "Carol K.," "I got the check in my hand for $150,000" by "William Rivas," and "I just had $300,000 dollars deposited into my bank account" from "Edwin Hurd." (Id.) Further down the page, it says "Our FREE SOFTWARE contains everything you need to know about how and where to access your grant money and can be shipped directly to your home or office within a matter of days" and "Information worth thousands of dollars! It's yours now for FREE!" (Id.) Beneath those statements the site prompts users to "Please Enter Your Details Below To See If You Qualify For One of Our Free Trials" indicating that the shipping and handling for the CD is $2.29 and asking for personal information followed by a button that says "Click Here To See If You Qualify For One Of Our Remaining FREE Grant Master CDs!" (Id.)
The next page in the "Grant Funding Solutions" site opens with "Congratulations! You Are Well On Your Way To Becoming One Of The Countless People Who Have Already Claimed Their Rightful Government Grant Money!" (Id. at 11.) Following the testimonial by "Jennifer Barsness" also seen in the Jacobson sites, the page says "You qualify for one of our remaining FREE Grant Master Software CD's!" and further mentions that the consumer can "instantly access the # 1 Rated Grant Resource Center" and "follow the advice in the Express Business Funding Guide" in order to "demand your fair share of the $1.5 Trillion in FREE Government Grant Money." (Id.) The site then prompts users to "Please Tell Us Where You'd Like Your Free Copy Of The Grant Master Program Rushed!" and asks for the user's shipping information, followed by "CLICK HERE TO GET YOUR FREE TRIAL NOW" (Id. at 11-12.)
The image of the "Grant Master CD" site captured by Menjivar is formatted in a strange way, perhaps as a result of the way it was captured, but it clearly contains similar elements to the sites already described, including prompts for personal information to "see if you qualify," testimonials about receiving money to pay personal expenses from "D. Stewart" and "N. Lee," the letter to the taxpayers from Dr. Porter, an image of a check that consumers are told they can hold "within just 7 days!" and examples of personal expenses paid with money from "Federal and Private sources." (Dkt. no. 32-7, Exh. 125 at 1-2.)
The third site captured by Menjivar in October 2008 is the "Grant Funding Success"
In response to an FTC CID Interrogatory seeking details regarding IWorks' sales sites, IWorks provided screenshots of certain websites, including four images from "Grant Writer Pro" websites. (See dkt. no. 1263-1 ¶¶ 11-15.) The images from the "Grant Writer Pro" websites appear to be identical. (See dkt. no. 31-8, Exh. 121A; dkt. no. 31-9, Exh. 121B; dkt. no. 32, Exh. 121C; dkt. no. 32-1, Exh. 121D.) The "Grant Writer Pro" sites appear to proceed in two stages.
First, their initial pages state that "The Government gives away BILLIONS each year! The SECRET Behind Government Cash! Our FREE software reveals how you can get your share of Federal money!" Beneath that is an image of an envelope that prompts the user to put in their address and click "Ship My Kit." An image of a check pokes out from behind the envelope that is from "The Grants For Better Living." There is a testimonial from "Diane O'Leary" that says "I received a check within a week. Literally all I did was use the software to complete an application." In big letters in the middle of the page it says "FREE!" and under a CBSNews.com logo it states "`CBS News and other sources report that the U.S. Government must find recipients, and then distribute over $360 billion dollars to groups, organizations and private individuals just like you!" There are testimonials from people who claim to have received checks and were able to pay for personal expenses. These testimonials appear bellow boasts such as "Thousands of CDs ordered! Millions of dollars awarded! OVER HALF A MILLION MEMBERS HAVE FOUNDS GRANTS." Testimonials include "I couldn't believe it when I opened the letter with a $5,000 check inside! It took less than two weeks! I never thought it could be so easy to get a Grant!" from "Alexis Pierce" and "I replaced my kitchen and bathroom faucets, bought a new vanity, fixed the pipes under my house, and paid my power bill" by "Shauna Donaldson."
Second, the "Grant Writer Pro" site tells users "Just One More Step!" and asks for credit card information to "Get your software." Users have the option of a download for $0.99 or a CD for "$1.97 S & H." Under the "CONTINUE" button there are disclosures regarding the three trial memberships and charges that will be applied if they are not cancelled. Beneath that, the site describes "Special Bonus # 1 14 Days
Defendants provided eight exhibits in support of their opposition to the FTC's motion for preliminary injunction. (See dkt. no. 97, Bryce Payne Decl.; dkt. no. 99, Exhs. 1 and 2; dkt. no. 100, Exhs. 3 and 4; dkt. no. 101, Exhs. 5, 6, 7 and 8.) According to Bryce Payne, Operations Manager for IWorks, Exhs. 1, 2, 4, and 8 in particular "were among the most popular landing and order pages for the Grant Program." (Dkt. no. 97 ¶ 7.)
Exhibit 1 begins with "NOTICE! There are literally thousands of Private and Federal Grants out there, providing BILLIONS OF DOLLARS in Grant money. Finding your way through them can be difficult and time consuming! We can help you find your way through the maze of red tape!" (Dkt. no. 99, Exh. 1.) The page proceeds with the claim that "There are over 1,000 Federal and 50,000 Private Grants, providing BILLIONS OF DOLLARS in Grants! Congratulations! You can be one of thousands of people who have applied for Grant Money ONLINE!" Moving down the page there is a testimonial from "Tiffany S" who is thankful for funding through the Grant-A-Day program. The site claims "There are literally THOUSANDS of Federal and Private Grants Available!" and "The annual amount of Grants given every year amounts to BILLIONS OF DOLLARS world-wide!" As to the types of grant money available, the site states "Everyone knows about Scholarship and various types of small business assistance that is available, but there [are] people getting Grants that they've used for everything from mortgage assistance to medical bills. Let us introduce you to a few of them! Continue reading below to see the real stories behind real people who've had real results with Grants!" The site then lists five (5) testimonials under the heading "Read About REAL PEOPLE Who Have Received REAL MONEY!" These testimonials include many that are also featured on other sites described above, including "Delroy S" who used the money to stop foreclosure, "Tamara S" who got a check in the mail and used it to pay off debt associated with her home business, and "Sharon E" who used the money to fix up her truck. Although these are the same testimonials that appeared in the Jacobson and Menjivar sites, here they explicitly state that money was provided through the "Grant-A-Day" program, as opposed to the more generic "grant program" or "grant doctor program" that these same people credit as the source of their funding in the otherwise identical testimonials printed on the Jacobson and Menjivar sites. There is also a testimonial from "Joyce S"—under the title "Money To Buy Christmas Presents!"—who received a check in the mail and used the money to pay off bills so that she could buy Christmas presents for her kids. The site then asks for the typical landing page information such as marital status and income "To See If Our Unique One Of A Kind CD Is Right For You."
The next page says "Congratulations! You Could Be Well On Your Way To Locating And Applying For A Grant!" The page features a testimonial from "Jennifer B" who says in big lettering "I just can't thank you enough!" and explains that she received a check in the mail and paid her utility bills. Moving down the page it says "Great News! We'd like to send you one of our Private and Federal Grant CD's! Not only that, but we'd like to give you access to our FULL RANGE of services, including our Live Chat Representatives and our
Exhibit 2 (dkt. no. 99, Exh. 2) is an order page substantially similar to the "Fast Grants" order page captured by Jacobson (dkt. no. 31-5, Exh. 118 at 5). Like that page, it boldly states, "Only One More Step!" and features a big arrow directing users to a box where they can enter their credit card information. (Dkt. no. 99, Exh. 2.) This box contains a tally with items such as the "Fast Grants CD" and the "Trial" and "Trial Memberships" all listed with a price of "$0.00" and "Shipping & Handling" listed at "$2.29" with a sum total of "$2.29" as "TODAY'S TOTAL." This order page also features the familiar testimonials, disclosures in small print at the top of the page, and the large print claim that "There Are Over 90,000 Private & Federal Grants Listed! There Was Over 80 Billion Dollars Given Out Last Year!"
Exhibit 4 is a landing page for "Grant Search Assistant." (Dkt. no. 100, Exh. 4.) Next to an image of a smiling woman, it states in large print "How a Desperate Housewife Got a Check In Her Hand To Help Her Family!" and has a testimonial from "Samantha Hall" who says that she received a check and used the money to pay for her utility and cell phone bills. (Id.) The page states, "If You've Ever Paid The Government Taxes . . . you might qualify for federal or private grant money!" (Id.) Huge letters say "NOW!" and point the user towards a box to enter their shipping information, which says "Hurry! Claim Your CD By Filling Out This Form! [only ${ SH.PRICE} S & H]." (Id.) This page also features an image of a check for $1500 from the "Grant Trust Foundation" and states, "You could have a check like this one within a week!" (Id.) The page also has a statement from Dr. Porter similar to those featured on other sites described above.
Lastly, Exhibit 8 appears to be a landing page for a "Grant Master" site. (Dkt. no. 101, Exh. 8.) It says, "Let Us Help You Locate Grants!" and has "Now!" in big letters with an arrow directing users to fill in their shipping information to "Claim Your FREE CD TODAY (only $2.99 S & H)." (Id.) It touts "The Grant Master Software!" and says "There are literally thousands of Private and Federal Grants providing billions of dollars in Grant money. Finding your way through them can be difficult and time-consuming! We can help you through the maze of red tape!" (Id.)
The remaining PI Opposition Sites appear to be duplicative of past exhibits or illegible. Exhibit 3 appears to be identical to Exhibit 1. (Dkt. no. 100, Exh. 3.) Exhibits 6 and 7 (id.) are identical to the "Fast Grants" landing page captured by Jacobson (dkt. no. 31-5, Exh. 118 at 1). Exhibit 5 is illegible and therefore cannot be analyzed in this Order. (Dkt. no. 101.)
Because many of these sites, including Exhibit 8, refer to the "FREE CD" that appears to contain software related to the advertised grant products and programs or a database of available grants, it is important to discuss what is not contained in the CD. Jeremy Johnson stated at the hearing that consumers could only find
The parties group Counts I, II and VI together. With regard to these counts, the FTC asserts that "IWorks' claims misrepresented the purpose and efficacy of its grant product, promising consumers that they were likely to obtain grants for personal expenses, while such grants were generally unavailable, and deceptively using `testimonials' that were fake, unsubstantiated, and were not from people who actually received a government grant." (Dkt. no. 1280 at 50.)
A particular advertising claim will be deemed to have been made if consumers, acting reasonably under the circumstances, would interpret the statements to contain that message. In re Kraft, Inc., 114 F.T.C. 40 (1991), aff'd, 970 F.2d 311 (7th Cir.1992) (citing Thompson Med., 104 F.T.C. 648). Advertisements that are "capable of being interpreted in a misleading way should be construed against the advertiser." FTC v. Gill, 71 F.Supp.2d 1030, 1045-46 (C.D.Cal.1999) (quoting Resort Car Rental Sys., Inc. v. FTC, 518 F.2d 962, 964 (9th Cir.1975)).
A consumer using the grant sites described above and acting reasonably under the circumstances is likely to believe there are government grants
The FTC argues that the representations were actually false because government grants were not available for personal expenses. In support of their argument that grants for personal expenses are unavailable, the FTC offers up the fact that the "Grants.gov" website, which is the federal government's official grant site, says that few grants are available for individuals and "none of them are available for
As to the testimonials, the FTC issued a CID request for Defendants to identify every individual in its grant site testimonials and provide substantiation. (Dkt. no. 20-10 at 4-5.) In response, Defendants provided a list of 15 names. (Id.) This list does not include some of the people who gave testimonials that repeatedly appear in the sites described above, including "C. Robb Ross," who gave a testimonial about using the money to pay for her son's textbooks, and "Jennifer B," who used the money to pay utility bills and buy household supplies. Nor does the list include any of the nine individuals listed on the landing page of the "Federal Grant Connections" site who received grant money in the range of approximately $5,000 to over $140,000 (dkt. no. 31-6, Exh. 119 at 1), or "Carol K," "William Rivas," and "Edwin Hurd" who received $100,000, $150,000 and $300,000, respectively, according to the "Grant Funding Solutions" site (dkt. no. 32-6, Exh. 124 at 1-2). Defendants also provided a list of their "Grant-A-Day" recipients and amounts received. (Dkt. no. 1263-1, Reeve Tyndall Decl., Exh. 1725 ¶ 17.) FTC investigator Tyndall compared the list of "Grant-A-Day" recipients to the list of people who gave testimonials, and discovered that 14 of the 15 people who gave testimonials also received money from the "Grant-A-Day" program. (Id. ¶ 18.) The "Grant-A-Day" program was not a government grant program but was developed by IWorks in partnership with a non-profit organization called Frontiers For Families.
The FTC argues that in addition to being misleading, the asserted misrepresentations are material because they were "used to induce the purchase of a particular product" pursuant to Pantron I and they "pertain to the central characteristics of the product" pursuant to FTC Policy Statement on Deception. (Dkt. no. 1280 at 50.)
Defendants argue in opposition that: (1) the FTC does not challenge sites promoting both government and private grants; (2) consumers did not care about the source of a grant—whether it was government or private; (3) government grants are in fact available for personal expenses; (4) IWorks' websites never represented the likelihood of a consumer qualifying for a grant; and (5) website testimonials are substantiated as to IWorks' "Grant-A-Day" program. (See dkt. no. 1343 at 7-18.)
Defendants' assertion that the FTC does not challenge sites promoting both government and private grants is a mischaracterization of the Amended Complaint and Motion. There is no indication in the Amended Complaint or the Motion that the FTC limits its arguments to those sites solely claiming government grants are available. In its examples of IWorks' misrepresentations with regard to government grant money, the FTC cites to websites that mention both government and private grants. (See, e.g., dkt. no. 1280 at 4-5 n.9, n.15, n.17 (citing dkt. no. 31-5, Exh. 118 ("Hope may be had in a Government or Private Grant")).) Further, the mere fact that Counts I and II allege misrepresentations with regard to government grants does not mean that any sites making representations about both private and government grants are categorically exempt. Indeed, a representation that there are thousands of government and/or private grants available is a representation as to the availability of government grants. To the extent that Defendants are arguing that "government and/or private grants" should be construed to mean "primarily private," then claims about the availability of thousands of government and/or private grants were fundamentally misleading in the first place. A consumer is likely to believe that such a representation means there are thousands of each, or at least a reasonable mix.
Defendants' argument that consumers did not care about the source of the grant—whether government or private—misses the point. In determining materiality, the question is whether the information is important and thus likely to influence a consumer's choice. See Cyberspace.com, 453 F.3d at 1201 (citing Cliffdale Associates, Inc., 103 F.T.C. 110 (1984)) A consumer purchasing a product in the hopes of accessing grant money is certainly not likely to turn down money offered through a private source. That does not mean that consumers were less likely to be influenced by the sites' repeated representations as to the availability of government grant money. For instance, in consumer Edgardo Hong's deposition, to which Defendants cite, he states that he would not have "ruled out" a grant from a private source. (Dkt. no. 1238-3, Exh. 1619 at 109.) Hong also states, however, that he "wasn't in the market for a grant" but when he "came across [the site], and it was mentioning [a] federal grant, there was a lot more legitimacy about the
Defendants next argue that government grants are in fact available for personal expenses. (Dkt. no. 1343 at 10-11.) Defendants present a declaration from their expert, Beverly Browning, who has been in the grant business for 40 years and authored the book Grant Writing For Dummies. (Dkt. no. 1339-9, Beverly Browning Decl., Exh. 1808 at 1.) Browning states that from 2006 to 2010, the relevant time period in this case, there were "thousands of `grants' (as used by laypersons)" available for "what might be considered `personal needs'" including "programs for persons residing or operating businesses in smaller-population areas, veterans, students/prospective students, minorities, refugees, senior citizens and lower-income persons." (Id. at 7-8.) Browning then goes on to list some of these programs, such as rent and monthly allowance from "Section 8" for low-income residents, grants of up to $7,500 for lower-income residents 62 or older in rural areas to repair or modernize their home, up to $50,000 for injured veterans to make their homes accessible, and Pell grants and scholarships for students. (Id. at 8-16.) Browning states that laypersons adopt an extremely broad definition of grant that includes "any programs by which . . . money or savings can be obtained, such as benefit programs, scholarships, fellowships, research grants, training grants, traineeships, service grants, experimental and demonstrations grants, evaluation grants, planning grants, technical assistance grants, survey grants, construction grants, and unsolicited contractual agreements." (Id. at 3.) FTC expert Bauer filed a rebuttal report in which he claims that grants do not include any and all programs through which individuals can obtain money or savings, and that such a definition of "grants" for laypersons is without any authority. (Dkt. no. 1389-4, Dadiv Bauer Suppl., Exh. 1769 at 3-4.) Bauer also states that the programs identified in Browning's report are: "(1) not grants to individuals; and/or (2) highly restrictive and limited." (Id. at 7.)
The evidence before the Court shows that in the context of the sites addressed in this Order, consumers may have understood the word "grant" to be much broader than the definition adopted by the "Grants.gov" site. Dr. Porter explained in his deposition testimony that grant professionals do not consider all gifts of money, including Pell grants and scholarships, to be grants but that "the public uses the word `grant' very loosely." (Dkt. no. 1339-4, Dr. Porter Depo., Exh. 1803 at 72-74.) Tyndall also stated in his deposition that the consumers he spoke to did not "seem to understand the distinction" between grants and entitlements or benefits
Defendants argue that their sites never gave the impression that consumers were likely to receive grant money because they emphasized that consumers "may" qualify. (Id. at 15-16.) The Court disagrees. For the reasons previously stated, the sites give the impression that there are thousands of grants and millions or billions of dollars waiting to be claimed by those who use Defendants' products and programs. The sites also stress that millions or billions have already been given away and encourage consumers to claim their share. Some sites even cite to news sources and state that the government has money that it must give away. Many sites ask for personal information and congratulate the user in large letters, giving the impression that users are already in the process of qualifying. Some of the sites tell the consumer that they "qualify" for software or a CD. This process of "qualification" and congratulation even occurs in the example provided by Defendants in their opposition to the FTC's motion for preliminary injunction. (Dkt. no. 99, Exh. 1.) Some of the sites say that government money is available to the consumer if they have paid taxes. Though the approach is not always the same in every site, all of the examples reviewed by the Court give the impression that the consumer is likely to receive government grant money. The occasional presence of words like "may" does nothing to dull the impact of these claims because the sites present little to no barriers between the consumer and government grant money. The impression is clear: if the consumer purchases the product, they will receive this money.
Lastly, Defendants argue that they have provided substantiation for their Grant-A-Day recipients. (Dkt. no. 1343 at 16-17.) Even accepting that as true, Defendants have not provided substantiation for all of the testimonials used in the sites. More problematic, however, is that the testimonials were used in a misleading way. Only in four of the sites considered by the Court (dkt. no. 32-6, Exh. 124; dkt. no. 32-7, Exh. 125; dkt. no. 99, Exhs. 1 and 2) do any of the testimonial excerpts clearly state that money was provided through the Grant-A-Day program. This language was apparently changed to match the name of the IWorks program or product being promoted such as "grant program" or "grant doctor" (the Jacobson Sites; dkt. no. 101, Exh. 6), or removed entirely from the testimonials printed on other sites, giving the misleading impression that their results were from any one of the thousands of grant programs that IWorks' websites boasted about. Even in the pages that do feature testimonial excerpts mentioning Grant-A-Day, that program is not otherwise described or explained. (Dkt. no. 32-6, Exh. 124; dkt. no. 99, Exhs. 1 and 2.) The lone exception is one
Count I alleges that Defendants misrepresented the availability of government grants to pay personal expenses. The FTC's position is that the sites represent that government grants are available to pay for personal expenses and that such a representation is false. The "Grants.gov" site says that "[a] federal grant is an award of financial assistance from a federal agency to a recipient to carry out a public purpose of support or stimulation authorized by a law of the United States." (Dkt. no. 26-3 ¶ 26.) Viewing the sites in a light most favorable to Defendants, the sites do not represent to consumers that they can receive "an award of financial assistance from a federal agency" in order to pay for personal expenses. The sites represent that government money is available in the form of grants and grant programs without necessarily giving the impression that consumers will receive grants from federal agencies directly. The sites' representations may therefore be understood to be consistent with the broader definition of "grant" advanced by Defendants, which includes assistance and loans. A consumer could have reasonably understood that the purpose of the IWorks programs and products was to point the consumer towards relevant grant programs and give them guidance on how to apply. These grant programs could have been any number of the ones pointed out in Browning's report. The Court therefore cannot determine that Defendants' representation as alleged in Count I is likely to mislead a consumer acting reasonably. Simply put, a consumer acting reasonably could expect that the sites' references to government grants included loans and assistance. The Court does not, and need not, determine what the word "grant" means to the average consumer. The Court does find, however, that the FTC has not demonstrated that there is no genuine issue of material fact as to Count I and summary judgment is denied as to that count.
Count II alleges Defendants misrepresented that consumers using Defendants' grant product are likely to find government grants to pay personal expenses. Even accepting Defendants' broader definition of "grant," such government grant programs are still only available to limited groups. Consumers would not be able to tell that by looking at the sites, however, which repeatedly reinforce that the government is giving away money but do not identify any specific programs for limited groups like those highlighted in Browning's report. For the reasons set out above, the sites give the impression that consumers will be able to access government grant money through the use of IWorks' programs and products. Nearly every page is filled with multiple testimonials from people who received money, usually in the form of checks in the mail, with apparently no strings attached. Consumers are bombarded with huge numbers about grant money available and given
Despite strong challenges by the FTC as to the availability of grants, Defendants have not produced any evidence that any of their consumers actually received grant money outside of those that received money through Grant-A-Day. Only 0.04% of consumers enrolled in Defendants' grant membership program between August 2007 and January 2010 actually received money from the Grant-A-Day program.
The Court concludes that the sites are likely to mislead consumers acting reasonably under the circumstances into believing that they are likely to receive government grants. This representation was false because the grant money promoted on these sites was either only available to limited groups or not available at all, depending on which definition of "grant" is being used. The mere fact that the sites also mention "private" grants does not alter the deceptive net impression as to the
Count VI alleges that Defendants misrepresented that consumers using Defendants' grant product are likely to obtain grants such as those obtained by consumers in the testimonials. The testimonials appear again and again on every one of the sites' pages. Defendants provided substantiation for some of the testimonials, but the listed recipients almost exclusively received money through the Grant-A-Day program. Yet this information is omitted in all but four of the sites before the Court, and many of the sites do not mention the Grant-A-Day program at all. As previously discussed, the sites give the clear impression that the people in the testimonials received money through any one of the thousands of government and private grant programs touted on these sites that have millions or billions of dollars to give away. These people appeared to have received money in the mail that they appeared to be able to spend on any personal expense. Some of the testimonials indicate that people received grants in a week or two.
The Court concludes that the sites are likely to mislead consumers acting reasonably under the circumstances into believing, incorrectly, that they are likely to receive money like the people in the testimonials. This was false because the evidence before the Court is that the people in the testimonials almost exclusively received money through the Grant-A-Day program operated in part by IWorks, and not the thousands of private or federal programs mentioned on the sites. As previously mentioned, only 0.04% of consumers enrolled in Defendants' grant membership program between August 2007 and January 2010 actually received money from the Grant-A-Day program. The recipients of Grant-A-Day awards did not need to use IWorks' databases full of grant programs. They were eligible to apply purely by virtue of having purchased IWorks' program or product. The deceptive impression created by this representation is material because it goes to the central characteristics of the product—earnings and efficacy—and induces purchase.
With regard to substantiation for the testimonials, there is no evidence before the Court that the testimonials proclaiming grants of higher than $5,000 have any reasonable basis to support them. As previously
The Court therefore finds that there is no genuine issue of material fact as to the alleged FTC Act violation asserted in Count VI.
As Counts IV and V both deal with the negative option memberships and their disclosure on the sites, the Court will consider these counts together. The parties group these counts together as well. The FTC alleges, as to Count IV, that "IWorks falsely represented in numerous marketing sites that its products were `Free' or `Risk-Free' while, in fact, once consumers provided their billing information, IWorks deceptively enrolled them in pricy negative option continuity programs." (Dkt. no. 1280 at 51-52.) The Amended Complaint asserts, as to Count V, that Defendants represented that consumers would only be charged a small fee for a CD or software while failing to adequately disclose that consumers will be enrolled in negative option memberships and upsells. (Dkt. no. 830 ¶¶ 457-459.)
While Counts I, II, and VI were only asserted as to the grant membership sites, Counts IV and V are asserted as to all of Defendants' sites marketing and selling "various products or services." (Dkt. no. 83 at 80-81.) For the reasons explained above, the Court can only limit its inquiry to the grant sites it reviewed.
The sites described above represent, explicitly and repeatedly, that consumers will be paying a small shipping and handling or download fee for a free, or risk-free, CD or software.
The FTC asserts that Defendants' representations about the free or risk-free nature of the product and the cost of the CD/software were misleading because consumers were also enrolled in negative option memberships and upsells without adequate disclosures. (Dkt. no. 1280 at 53-57.) They assert that IWorks placed its "fine-print disclosures" after consumers had already begun the ordering process. (Id.) According to the FTC, a consumer proceeding through the website pages would have the net impression that they were getting a free CD for a minimal shipping and handling or download fee. (Id.) They state that the sites collected preliminary information without informing the consumer that they would be enrolled in a core membership with a negative option and additional upsell memberships
In sum, the FTC argues that the disclosures were presented in a way that made consumers unlikely to expect them (because the claims "free" and "risk free" were so prominent) and were unlikely to see them (because the disclosures were inadequate or non-existent). (Dkt. no. 1387 at 26.)
Looking at the sites described above, the Court generally agrees with FTC's characterization of IWorks' sites. As noted in the Court's description above, PI Opposition Sites Exhibits 4 and 8 are landing pages only. Aside from those examples, the remaining sites appear to proceed in two to three stages with the initial landing page highlighting the grants available, the money that can be made, and people who have achieved positive results. After being prompted to provide personal information, consumers are told they qualify for a free CD. In those sites that have three stages, such as the Jacobson Sites, consumers are asked in the intermediary pages to provide shipping information for the CD and are then directed to the order page in the final stage. All of the order pages ask for credit card information and indicate that the user will be charged a fee, typically two dollars and change, for the shipping and handling, or sometimes approximately one dollar for a download. The words "FREE" or "RISK-FREE" are repeated in large print throughout all of the sites' pages. Disclosures in small print relative to the rest of the page appear at the very top of the page or under the submit button.
As further evidence of the deception, the FTC points to an email from Ryan Riddle, IWorks' General Manager, in which he states that "we make our money off the clients that forget to cancel, or simply don't take the time to read the disclosures and thank-you emails." (Dkt. no. 1253-2, Exh. 857.) According to the Tyndall's review of IWorks' records, of the three million consumers who requested refunds, more than one million were "not aware of the monthly charges." (Dkt. no. 1254-1, Exh. 899 ¶ 36) This was the most used event code between January 1, 2006 and October 31, 2010. (Id.)
Defendants argue in response that: (1) negative options are a convenience and practiced by many businesses; (2) the FTC's requirements for effective disclosures were not clear; (3) it is standard e-commerce practice to place a negative option disclosures on the order page as opposed to the landing page; (4) the disclosures were in clear, plain language and gave the necessary information; and (5) the rate of cancellations in the trial periods indicate that consumers understood they were enrolling in membership programs and were aware of the upsell products. (Dkt. no. 1343 at 22-35.)
Defendants argue that negative options are a convenience for purchasers, and profiting off of consumers who forget to cancel or do not read disclosure terms is a legal business model. (Id. at 34-35.) Defendants point to other major businesses that profit from this model, including major sites such as Audible.com, Lifelock.com, and Netflix.com to name a few. (Id.) The Court will not weigh in on the legality of this business model in all cases. The Court notes, however, that there is a significant distinction between sites that clearly offer subscription-based or membership-based services to a consumer with a trial period and negative option on one
Defendants also argue that, as a matter of due process, they should have been provided with fair notice that the form of their disclosures was prohibited. (Dkt. no. 1343 at 23-24; dkt. no. 1352.) Defendants cite to cases in which federal agencies imposed civil penalties for violating regulations for mine safety, Stillwater Min. Co. v. Federal Mine Safety and Health Review Commission, 142 F.3d 1179 (9th Cir.1998), and toxic substances, General Electric Co. v. U.S. E.P.A., 53 F.3d 1324 (D.C.Cir.1995). Defendants also cite to a case in which the United States brought a civil forfeiture action on the basis of an alleged violation of the Shark Finning Prohibition Act. United States v. Approximately 64,695 Pounds of Shark Fins, 520 F.3d 976 (9th Cir.2008). In all of these cases, the penalized parties argued that the particular statute or regulation did not clearly cover their conduct. Defendants' contention here is unclear. The FTC has not assessed a penalty against Defendants in this case. Counts IV and V are brought pursuant to Section 5(a) of the FTC Act, which prohibits deceptive conduct in advertising. Defendants do not argue that Section 5(a) of the FTC Act, 15 U.S.C. § 45(a), is vague or inapplicable to their sites. There is extensive case law and guidance on what constitutes a deceptive act or practice under Section 5(a) going back to before the relevant time period in this case, including FTC guidance on internet advertising. See FTC v. Commerce Planet, Inc., 878 F.Supp.2d 1048, 1083 (C.D.Cal.2012) ("[T]he test under section 5(a) draws on well-established principles of advertising law and common sense.")
Defendants may not mislead consumers about the costs associated with their programs or products and claim that they did not have clear notice as to the particular method of their deception. "Such a rule. . . calls for a rigid formula that undermines the very usefulness and flexibility of the law permitting it to be applied to a multitude of factual circumstances under sustained principles." Id. The FTC seeks to impose liability on grounds that Defendants misled consumers into believing they had no obligation beyond a small fee when in fact they were enrolled in negative option memberships and upsells with initiation fees and recurring payments. Focusing on the form of the disclosures misses the forest for the trees. See Cyberspace.com, 453 F.3d at 1200 ("A solicitation may be likely to mislead by virtue of the net impression it creates even though the solicitation contains truthful disclosures.")
Defendants argue that the disclosures were in clear, plain language that provided all of the information required by the FTC. (Dkt. no. 1343 at 26-27.) Defendants state that the disclosures included "(i) the fact of the trial program enrollment; (ii) the length of trial period; (iii) the fact that the consumer would be charged "thereafter" if not cancelled; (iv) the amount of the charges; (v) the fact that the charges were monthly; and (vi) the fact that the charges would be billed to the same credit/debit card." (Id.) They argue that these disclosures were satisfactory like the disclosures in In re VistaPrint Corp Marketing & Sales Practices Litigation, 4:08-md-1994, 2009 WL 2884727 (S.D.Tex. Aug. 31, 2009).
In VistaPrint, the plaintiffs alleged that an online business card retailer deceived consumers into believing they had to complete a survey in order to complete their online purchase, and that completion of the survey enrolled consumers in negative option membership with recurring payments. Id. at *4. After consumers completed the checkout process for their business card, they were presented with a "VistaPrint Rewards" page that offered "A special thank you with your purchase from VistaPrint" in the form of $10.00 cash back. Id. The court found that it was clear that by the time consumers reached this page their order was already complete, and the new page was offering, at the top of the box containing the survey, "$10.00 Cash Back just for trying VistaPrint Rewards FREE for 30 days." Id. at *5. Beneath the survey questions, consumers were directed to enter their email address and below that instruction but before the space that allows the consumer to enter and confirm their email address, was the following:
Id. "This clear language advises the consumer before the place for entering and confirming the email address that typing in the email address and clicking `Yes' authorizes VistaPrint to charge/debit the consumer's account according to the Offer Details, signifies that the consumer has read and agrees to the Offer Details, and authorizes VistaPrint to transfer the consumer's credit/debit card information to VistaPrint Rewards." Id. There is a choice to then click "Yes" or "No, Thanks." Id. The "Offer Details" appear immediately beside the survey box and "are in the same size and color as most of the print on the webpage except that the title `Offer Details' is in bold print." Id. The court found that the VistaPrint Rewards page was not deceptive because it "contains adequate disclosures which, if read by the consumer, prevent the webpage—as a matter of law—from being deceptive." Id. at *6.
The VistaPrint page also informs the consumers, above the "Yes" button in text that is only smaller than the title of the page, that by entering an email address and clicking "Yes," they are consenting to have their credit card or debit card charged. Consumers are also explicitly directed to the "Offer Details" that are titled in bold next to the survey box. In this case, on the other hand, disclosures appear either at the top of the page or under the submit button in text smaller and more narrowly-spaced than the majority of other text on the page. The site does not direct consumers to examine the disclosures and they are not titled in bold. The box that asks for credit card or debit card information prominently states that there is a shipping and handling fee of two dollars and change, or a download fee of approximately one dollar, without mentioning the ongoing payment obligations that appear in the disclosures.
Further, the court in VistaPrint appeared to conclude that clear and easily understandable disclosures in close proximity to the area where a consumer submits their agreement prevents a page from being deceptive "as a matter of law." Id. at **5-6. There is no such bright-line rule. Nor can there be such a rule as consumers may be misled into believing close review of the disclosures is not warranted in the first place. In fact, the Ninth Circuit found that the solicitations in Cyberspace.com created the deceptive impression that consumers were receiving a refund or rebate check and not an offer for services, even though the mailing contained truthful disclosures. Cyberspace.com, 453 F.3d at 1200-01; see also Gill, 71 F.Supp.2d at 1044 (disclaimers do not automatically exonerate deceptive activities).
Defendants also assert that the rate of cancellations demonstrates that consumers were familiar with the disclosure terms. (Dkt. no. 1343 at 27-28.) Dr. Robert L. Vigil, economics expert for Defendants, states in a report that of the customers that purchased the products from January 2006 to December 2009, 19.9% of the core memberships and 28.1% of the upsell memberships were cancelled in the trial period, which indicates that "many consumers understood they were enrolling in membership programs" and were aware of the upsells. (Dkt. no. 1262-1, Vigil Rept., at 10-11.) The FTC argues in response that this does not account for the majority that did not cancel and there is no evidence as to how these consumers knew to cancel, whether it be from a confirmation email, the product itself or some other source. (Dkt. no. 1386 at 30 (citing Commerce Planet, 878 F.Supp.2d at 1071-72)).
Moving through the pages of the various sites, the Court is struck by the fact that it
What is clear, however, is that the sites do not advertise a membership program. Aside from the couple of odd instances described above, the sites don't even mention memberships outside of the disclosures. The sites do not clearly state what services will be provided for the monthly fee and how much it will cost. The only cost prominently described on the order page is the fee for the CD. A consumer that did happen to review the disclosures would not necessarily understand what they are receiving for the monthly fees, particularly when they are already receiving the CD for free. That speaks to the reality of these websites: they are selling the availability of grant money and they are selling the CD, but they are not selling memberships or the benefits of said memberships.
Count IV alleges that Defendants misrepresented the free or risk-free nature of their offers. The Court concludes that the sites are likely to mislead consumers acting reasonably under the circumstances into believing that they are receiving a "free" or "risk-free" product. This representation was actually false because upon ordering the CD, consumers were enrolled in negative option memberships and upsells that automatically charged consumers' credit cards or debit cards after the trial periods. The mere fact that the sites contained disclosures in smaller print and described the upsells as "bonuses" and trials at the bottom of the order pages, does not alter the deceptive net impression as to the cost and nature of the product because consumers would not be inclined to seek out this information.
Count V alleges that Defendants failed to disclose that consumers will be entered into negative option continuity plans. The Court concludes that the sites are likely to mislead consumers acting reasonably under the circumstances into believing that they would only be charged a small fee for a CD or software. For the reasons described as to Count IV, this representation was actually false and material.
However, the Court finds that there is a genuine issue of material fact as to whether judgment on Counts IV and V is appropriate as to the two sites that list all of the trial memberships next to a price of "$0.00" in the order box directly above the space to enter credit card details. (Dkt. no. 31-5, Exh. 118 at 5; dkt. no. 66, Exh. 2.) These sites make it clear, right before the consumer enters their payment information, that consumers are receiving the CD and trial memberships. While it may be that they are still deceptive given that the price is listed as $0.00, the issue is a
The Court therefore finds that there is no genuine issue of material fact as to the alleged FTC Act violation asserted in Count IV and Count V.
The FTC provides images of IWorks' Google product sites that the FTC received in response to a CID request. (Dkt. no. 1280 at 19 n. 87.) They appear as FTC Exhs. 131, 132, 133, and 136. (Dkt. nos. 33-2, 33-3, 33-4, and 33-7.) The Court will focus on these exhibits in its analysis of the FTC's claim regarding the Google product because Defendants provided these images.
Exhibit 131 is an image of a page from a "Google Biz Kit" site. (Dkt. no. 33-2.) The top of the site says "Google has `made it viable for people to make a couple dollars, or thousands of dollars'" next to an image of The New York Times' logo. Beneath that is an image of a laptop with cash coming out of the screen and logos from USA Today and CNN, among others. Next to the image of the laptop, in the largest letters on the page, it says, "You could make $199 or more a day on Google." There is a box that says "COMPLETE THE FORM TO SEE IF YOU QUALIFY" and asks for name, email, and phone number and prompts the user, "FOR INSTANT ACCESS CLICK HERE." The site says, "CONGRATULATIONS—YOU QUALIFY FOR A FREE TRIAL" in large letters and tells the user, "This is THE OPPORTUNITY YOU'VE BEEN LOOKING FOR!" At the bottom of the page, beneath images of people expressing desires for their careers, is a USA Today logo next to a quote that says, "Riches range from a few hundred dollars a month to $50,000 or more a year!" Under that it says, "Your Cost = $0. In just a few minutes per day, Google Biz Kit will show you how you could earn $199 per day working from home!" Beneath that it says, "Google makes it possible to bring in money with little effort and major return."
Exhibit 132 is an image of a page from a "Google Profit Software Kit" site. (Dkt. no. 33-3.) In large letters up top it says, "Easily make $188-$923 a day from home, online. Thousands are doing it and YOU CAN TOO!" It states "Risk FREE Trial" in front of an arrow that says "COMPLETE THE FORM TO START IMMEDIATELY" and points to a box that asks the user for name, email, and phone number. Beneath the arrow is an image of an equation that has an image of a laptop multiplied by the Google logo plus "YOU" equals an image of money. It also presents three steps that are, in order, "FAST," "EASY," and "CASH."
Exhibit 133 is an image from a "Google Pay Day" site. (Dkt. no. 33-4.) The top of the page has the same quote next to The New York Times' logo, same image of money emerging from a laptop, and same claim about making "$199 or more a day" as the "Google Biz Kit" site. Like that site, there is also a box that says "COMPLETE THE FORM TO SEE IF YOU QUALIFY" but the "Google Pay Day" site asks for the user's desired income, desired hours, and zip code. The page also lists three steps including, "1 Tell us how much you're looking to earn per week. 2 See if you qualify for one of your limited trial kits 3 Begin filling out offers and see the cash fly in!" Like the "Google Biz Kit" site, under the "qualification" box is a USA Today logo next to a quote that says, "Riches range from a few hundred dollars
Exhibit 136 is an image from another "Google Pay Day" site. (Dkt. no. 33-7.) It asks, "WOULD YOU LIKE TO MAKE $200 A DAY FROM HOME? WITH Google, YOU COULD MAKE IT HAPPEN!" The page features logos of television news channels and the USA Today logo next to a quote that says, "Riches range from a few hundred dollars a month to $50,000 or more a year!" Beneath that quote it says, "Google pays millions of dollars every month to people just like you, not just big businesses." The page has a "qualification" box that asks for name, address, phone number, and email. Under the requested information it says, "SEE IF YOU QUALIFY CLICK HERE." Next to the box it says, "Everything you'll need to make guaranteed fast money on Google: Your Cost = $0. In just a few minutes per day, Google Money Profits will show you how to earn $150, $500—even $1,000 per day or More!" There is an arrow pointing to the "qualification" box with a picture of stacks of cash that says, "UPON QUALIFYING, YOU'LL HAVE INSTANT ACCESS. YOU COULD START MAKING MONEY TODAY!"
The FTC asserts that "IWorks materially misrepresented the income potential of its make-money products on numerous websites, and . . . its earnings claims lacked adequate substantiation." (Dkt. no. 1280 at 50.) Count III focuses on IWorks' Google "Adwords" program,
A consumer using the Google "Adwords" sites described above and acting reasonably under the circumstances is likely to believe that they are likely to earn hundreds of dollars in one day and tens of thousands of dollars in one year using the product. The potential earnings are made explicit and the likelihood of profitable results is reinforced by the testimonials, apparent news excerpts, language about how money can be made with "little effort" or "easily" or "in a few hours," and language about how Google has "millions" to give away.
The FTC's sole argument in summary judgment is that the Google "Adwords" sites' earning claims are not substantiated. (Dkt. no. 1387 at 15.) In response to a CID request asking Defendants to identify every individual featured in the sites' testimonials and the substantiation that
The FTC argues this substantiation is insufficient because: (1) they came from emails to Holdaway and were thus not purchasers of the product through IWorks; and (2) their earnings were nowhere near the amounts claimed on the sites. (Dkt. no. 1280 at 20.)
The FTC argues that express claims regarding expected earnings are material to a consumer's decision whether to purchase a product. (Dkt. no. 1280 at 50-51.)
Defendants argue that the earnings claims are substantiated and true as demonstrated by Stephen Holdaway. (Dkt. no. 1343 at 18-21.) Payne describes Holdaway as a search engine marketing expert and Google advertising professional. (Dkt. no. 1343 at 18; dkt. no. 97, Payne Decl. ¶ 20.) Holdaway says that he made in excess of $120,000 per day in college using the methods outlined in his product and $200-943 per day is an achievable goal. (Dkt. no. 1339-14, Holdaway Rept., Exh. 1813 at 1-8.) He says that a consumer capable of browsing the Internet and making purchases could achieve the results described in the sites. (Id.) He further states that claims stating "millions of people are making money from home" was accurate because Google Adwords was Google's sole income at the time. (Id. at 7-8.) He also states that customers have reported making a profit on the very first day. (Id.)
Count III alleges that Defendants misrepresented the amount of income the consumers are likely to earn using Defendants' products. The FTC argues the Google "Adwords" sites' earnings claims are misleading because there was no reasonable basis to make those claims. Viewing the evidence in the light most favorable to Defendants, the evidence shows that Holdaway licensed his product to IWorks and believes, based on his interactions with clients and experience, that the earnings claims are accurate as to his product. As Defendants have produced substantiation, it is the FTC's burden to show that it is insufficient. John Beck Amazing Profits, 865 F.Supp.2d at 1067.
The FTC argues that Holdaway did not purchase the product through IWorks and that he "bears no resemblance to the ordinary inexperienced consumers IWorks targeted." (Dkt. no. 1387 at 19-20.) Although Holdaway may be sophisticated, he also claims to have based his conclusions on interactions with clients (dkt. no. 1339-14, Holdaway Rept., Exh. 1813 at 4) as well as emails from consumers who purchased the product from IWorks (dkt. no. 1238-2, Ex 1618 at 56-58).
The FTC further argues that Holdaway could not have provided the substantiation for Defendants' earnings claims because he only testified to providing IWorks with testimonials. (Dkt. no. 1387 at 20.) As Defendants' response to the CID request for substantiation for its testimonials did not provide a reasonable basis for the earnings claims, the FTC asks the Court to conclude that Holdaway could not have provided the necessary substantiation. The Court cannot conclude that the only substantiation Holdaway provided to
The emails provided in response to the FTC's CID request appear to be insufficient to substantiate the sites' earnings claims as they simply do not support the earnings of hundreds of dollars a day advertised on the sites. Defendants argue that testimonials are not required to "vouch [for] the truthfulness of marketing" (dkt. no. 1343 at 21) and the Court agrees. However, IWorks has failed to explain what their earnings claims were actually based on apart from the four emails provided in response to the CID. Even accepting Holdaway's conclusions as accurate, the mere fact that the earnings claims happen to be true does not address the question of whether IWorks had a reasonable basis to make such earnings claims at the time they were made. John Beck Amazing Profits, 865 F.Supp.2d at 1067 ("For an advertiser to have had a `reasonable basis' for a representation, it must have had some recognizable substantiation for the representation prior to making it in an advertisement" and "[d]efendants have the burden of establishing what substantiation they relied on for their product claims") (citations omitted). Defendants do not argue that they made the earnings claims based on information provided by Holdaway. They only argue that Holdaway's testimony establishes that "the challenged representations were in fact true." (Dkt. no. 1343 at 19.)
However, the FTC bears the burden of proving that Defendants lacked a reasonable basis for their earnings claims. See Pantron I, 33 F.3d at 1096. The Court finds that the FTC has not carried their burden of showing that there was no reasonable basis for the claims. There is a genuine issue of material fact as to the accuracy of the earnings claims. Given that Holdaway has stated the earnings claims are accurate and Defendants licensed the product from Holdaway, it may be inferred that Defendants relied on Holdaway for substantiation. A reasonable jury thus may find that Defendants did have a reasonable basis to make these claims.
For the foregoing reasons, the Court finds that there is a genuine issue of material fact as to Count III and summary judgment is denied as to that count.
The parties address Counts VII and VIII together. The FTC alleges that IWorks "misrepresented that the positive articles and blogs about its products, which IWorks widely disseminated on the Internet, were independent reviews by unbiased consumers who used its products. Instead, IWorks' employees and agents authored these web postings." (Dkt. no. 1280 at 51.)
The FTC submits a declaration from Tracey Kramm, IWorks' Merchant Accounts Specialist, who states that IWorks hired Reputation Hawk and Josh Stanley to "generate fake blogs and news articles praising IWorks products and to manipulate search engine results so that favorable reviews of IWorks products appeared above any negative reviews. These fake reviews were posted online in order to counter bad reviews and consumer complaint and did not identify that they were IWorks postings." (Dkt. no. 1254-2, Kramm Decl., Exh. 30 ¶ 21.) The FTC also submits the deposition testimony of Sara
In response, Defendants submit a declaration from Charles Martin, founder of Reputation Hawk, who states that he "was briefly hired by IWorks to improve their online reputation for certain sites" but was "not asked or instructed to post false information." (Dkt. no. 1339-24, Martin Decl., Exh. 1823 ¶ 3.) He states that Reputation Hawk was "asked to write about grants and include the names of certain sites they own within the content." (Id.) Defendants also submit a declaration from Josh Stanley who states that he was never hired to produce false statements of IWorks customers. (Dkt. no. 1339-25, Stanley Decl., Exh. 1824 ¶¶ 3-4.) He states it is common practice to write and publish articles and press releases to counter "negative, misleading and false information on the Internet." (Id.) Defendants argue that identifiable client contact information isn't always provided when a complaint is posted online, so IWorks had no way of responding to negative posts and comments. (Dkt. no. 1343 at 37.) They thus used reputation management to decrease visibility of negative content. (Id.)
The Court finds there are genuine issues of material fact as to Counts VII and VIII such that summary judgment is not appropriate. The form and content of these articles and web pages is not apparent to the Court and the Court is thus unable to determine what representations were actually made and how they were presented. Further, as to the articles and web pages being deceptive, there is evidence before the Court in the form of declarations with respect to Reputation Hawk and Josh Stanley to suggest that their postings did not contain false information.
The Court therefore denies summary judgment as to Count VII and Count VIII.
An act or practice is unfair if: (1) it causes substantial injury; (2) it is not outweighed by countervailing benefits to consumers or competition; and (3) consumers themselves could not reasonably have avoided it. 15 U.S.C. § 45(n); see also FTC v. Neovi, Inc., 604 F.3d 1150, 1155 (9th Cir.2010). The substantial injury prong is satisfied if the FTC offers sufficient evidence that consumers "were injured by a practice for which they did not bargain." Neovi, 604 F.3d at 1157 (citation and quotes omitted). "Both the Commission and the courts have recognized that consumer injury is substantial when it is the aggregate of many small individual injuries." Pantron I, 33 F.3d at 1102 (citation omitted). "The second prong of the test is easily satisfied when a practice produces clear adverse consequences for consumers that are not accompanied by an increase in services or benefits to consumers or by benefits to competition." FTC v. J.K. Publ'ns, 99 F.Supp.2d 1176, 1201 (C.D.Cal.2000). Lastly, "[i]n determining whether consumers' injuries were reasonably avoidable, courts look to whether the consumers had a free and informed choice." Neovi, 604 F.3d at 1158.
The FTC alleges that "IWorks' billing of its force upsells was unfair." (Dkt. no. 1280 at 57.) The FTC's allegations with regard to Count IX are the same as in Counts IV and V, discussed above, and the FTC addresses all three counts together in their reply.
The FTC has therefore not sufficiently demonstrated that this claimed injury is due to the deceptive practices the Court has identified in this Order. Without concrete and quantifiable evidence as to the extent of injury related to the deceptive sites, the Court cannot conclude there was substantial injury. See Neovi, 604 F.3d at 1157 (citation omitted).
The Court therefore denies summary judgment as to Count IX.
The EFTA was enacted "to provide a basic framework establishing the rights, liabilities, and responsibilities of participants in electronic fund transfer systems." 15 U.S.C. § 1693(b). It provides that a "preauthorized electronic fund transfer from a consumer's account may be authorized by the consumer only in writing, and a copy of such authorization shall be provided to the consumer when made." 15 U.S.C. § 1693e(a); see also Regulation E, 12 C.F.R. § 205.10(b). The terms "preauthorized electronic fund transfer means an electronic fund transfer authorized in advance to recur at substantially regular intervals." 15 U.S.C. § 1693a(10). To qualify as a preauthorized transfer and trigger the requirements of the EFTA, the transfer must be one that is authorized to "recur." See In re DirecTV Early Cancellation Litig., 738 F.Supp.2d 1062, 1091 (C.D.Cal.2010). Pursuant to Section 917 of EFTA, every violation of EFTA and Regulation E constitutes a violation of the FTC Act. 15 U.S.C. § 1693o(c).
The FTC argues, as to Count X, that "IWorks' recurring debits from consumers' accounts could not have been preauthorized as IWorks failed to disclose, or adequately disclose, these charges to consumers." (Dkt. no. 1280 at 60.) The Court has not made a determination as to the adequacy of Defendants' disclosures in all of their sites nor has the FTC presented sufficient evidence that, as a blanket matter, every single one of IWorks' sites had insufficient disclosures.
The FTC does offer three depositions from consumers who claim to have had their accounts debited. (Dkt. no. 1280 at 33 n. 145.) These three consumers offered declarations that say they ordered grant CDs and paid for the shipping and handling but did not recall seeing disclosures about the memberships. (See Huffman Decl., Exh. 78; Miller Decl., Exh. 82; Hong Decl., Exh. 77.) This evidence is not rebutted by Defendants.
The Court therefore grants summary judgment as to Count X for the electronic fund transfers made from consumer Huffman, Miller, and Hong's accounts.
There are still a number of issues related to the dispositive motions that may need to be resolved. These issues include: resolution of the remaining sites not addressed
The Court will set a status conference to address the effect of this Order on the remaining issues and the process for the Court's consideration of these issues. The parties are ordered to confer on resolution of these issues and submit a joint status report within fifteen (15) days.
The Court notes that the parties made several arguments and cited to several cases not discussed above. The Court has reviewed these arguments and cases and determines that they do not warrant discussion as they do not affect the outcome of the parties' motions.
It is therefore ordered that the FTC's Motion for Summary Judgment Against All Corporate Liability Defendants (dkt. nos. 1235, 1280) is granted in part and denied in part consistent with this Order.
It is further ordered that the FTC's Motion For Summary Judgment Against All Individual and Relief Defendants (dkt. nos. 1278, 1279) is denied without prejudice.
It is further ordered that Relief Defendants' Motion for Partial Summary Judgment (dkt. no. 1284) is denied without prejudice.
The parties are ordered to confer on resolution of the remaining issues and submit a joint status report within fifteen (15) days. A status hearing will be scheduled.
