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District Court Orders Record Fines in FTC Action Against Deceptive Telemarketers
Practical Law Legal Update 8-518-7866 (Approx. 3 pages)
District Court Orders Record Fines in FTC Action Against Deceptive Telemarketers
by PLC Intellectual Property & Technology
| Published on 03 Apr 2012 • USA (National/Federal) |
In Federal Trade Commission v. Navestad, the US District Court for the Western District of New York granted the FTC's motion for summary judgment against defendants accused of making deceptive automated telemarketing calls (robocalls) in violation of the Telemarketing Sales Rule and the FTC Act. The district court ordered permanent injunctive relief and $30,000,000 in civil penalties against the defendants, the largest fine ever imposed for unlawful calls to consumers on the national Do Not Call Registry.
Key Litigated Issues
The key issues before the US District Court for the Western District of New York in Federal Trade Commission v. Navestad were whether the FTC was entitled to:
- Summary judgment against the defendants for violating the Telemarketing Sales Rule and the FTC Act.
- Civil penalties and disgorgement.
Background
In June 2009, the FTC sued the defendants, Paul Navestad and Chintana Maspakorn (operating primarily as Cash Grant Institute), for violating the FTC Act and the Telemarketing Sales Rule promulgated under the Telemarketing and Consumer Fraud and Abuse Prevention Act. The FTC charged that the defendants engaged in an unlawful and deceptive telemarketing scheme. The scheme involved making millions of automated telephone calls (robocalls) to consumers. This also included millions of calls to consumers registered on the national Do Not Call Registry, inviting the consumers to visit various websites to learn about private and governmental cash grants and then charging the consumers fees for information related to these alleged grants. The FTC charged that the defendants deceptively advertised the cash grants as being widely and quickly available to individuals even though the grants were in fact not widely available, were difficult to obtain and often required extensive application processes.
The FTC moved for summary judgment against the defendants and requested a court order seeking injunctive and monetary relief.
Outcome
In its March 23 decision, the district court granted the FTC's motion for summary judgment. The district court found that the FTC presented substantial, unrebutted evidence that the defendants:
- Violated the FTC Act through making material, false and deceptive claims to deceive consumers.
- Violated the Telemarketing Sales Rule by:
- calling at least 2.7 million consumers registered on the national Do Not Call Registry;
- failing to pay the fee required to access the Do Not Call Registry;
- not providing an opt-out mechanism for consumers;
- not providing consumers with the ability to speak to a live operator; and
- making false and deceptive statements intending to induce consumers to pay for services that would allegedly enable them to easily and quickly receive public or private grants.
The district court ordered injunctive and monetary relief. The monetary relief consisted of:
- Over $1,000,000 in disgorgement from each defendant for violation the FTC Act.
- $30,000,000 in total civil penalties against the defendants for violating the Telemarketing Sales Rule.
In an April 2, 2012 press release, the FTC indicated that the $30,000,000 in fines is the largest civil penalty ever imposed for unlawful calls to consumers on the Do Not Call Registry.
Practical Implications
The FTC press release noted that this case is part of the FTC's ongoing crackdown on schemes that target financially strapped consumers.