F.T.C. v. Medical Billers Network, Inc.

• Decision Date: 31 March 2008
• Docket Number: No. 05 Civ.2014(RJH).,05 Civ.2014(RJH).
• Citation: 543 F.Supp.2d 283
• Parties: FEDERAL TRADE COMMISSION, Plaintiff, v. MEDICAL BILLERS NETWORK, INC., et al., Defendants.
• Court: U.S. District Court — Southern District of New York

543 F.Supp.2d 283

FEDERAL TRADE COMMISSION, Plaintiff, v. MEDICAL BILLERS NETWORK, INC., et al., Defendants.

No. 05 Civ.2014(RJH).

United States District Court, S.D. New York.

March 31, 2008.

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Ronald Lee Waldman, FTC, Northeast Region, New York, NY, for Plaintiff.

Steven Cohn, Law Office of Steven Cohn, P.C., Carle Place, NY, for Defendants.

MEMORANDUM ORDER AND OPINION

RICHARD J. HOLWELL, District Judge.

This is an action brought by the Federal Trade Commission ("FTC") against defendants Medical Billers Network ("MBN"), Chris Taylor ("Taylor"), Caceres Quality Distribution, Inc. ("CQD"), Wilson Jose Caceres ("Caceres") (collectively "Defendants") and relief defendant Knarek Kalantaryan ("Kalantaryan") for allegedly deceptive representations regarding "workat-home medical billing opportunities" promoted and sold by Defendants. The FTC alleges that Defendants' advertising and sales practices violated Section 5(a) of the Federal Trade Commission Act (the "FTC Act"), 15 U.S.C. § 45(a), and the Telemarketing Sales Rule ("TSR"), 16 C.F.R. Part 310.

The FTC's Amended Complaint includes four causes of action. Counts I and II assert violations of Section 5(a) of the FTC Act based on Defendants' alleged misrepresentations that purchasers of the MBN medical billing opportunity (the "MBN Program") were "likely to earn a substantial income" (Count I) (Am. Compl. ¶ 17) and that purchasers would receive information regarding physicians who were likely to use the purchasers for medical billing (Count II) (id. at ¶ 20). Counts III and IV assert violations of the TSR based on Defendants' alleged misrepresentations regarding "material aspects" of the MBN Program (Count III) (id. at ¶ 28) and Defendants' failure to disclose MBN's norefund policy to purchasers prior to payment (Count IV) (id. at ¶ 29).

The FTC and defendants Taylor and MBN (the "Taylor Defendants") have filed cross-motions for summary judgment. The Court's review of the record, guided by the parties' Rule 56.1 statements and responses, shows that the following facts are both undisputed and adequately supported by evidence the Court may consider in connection with a motion for summary judgment.¹

FACTS

I. Parties and Background

MBN and CQD promoted and sold work-at-home medical billing opportunities. (Pl.'s Rule 56.1 Statement of Material Facts Not in Dispute on Mot. for Summ. J. ("FTC Facts") ¶¶ 10, 11.) Taylor is the president, chief executive officer, sole director, and sole shareholder of MBN, and the registrant of MBN's website. (Id. at ¶¶ 4, 12, 14, 15, 16; Taylor Defs.' Statement of Material Facts in Dispute in Resp. to Pl.'s Mot. for Summ. J. ("Taylor Defs.' Disputed Facts")² ¶ 21.)

Taylor was the designer and draftsman of the MBN program and the materials used by MBN to market the program to the public. (Taylor Defs.' Disputed Facts ¶ 22.) The program and materials were a result of extensive research and analysis, including research regarding laws governing medical billing and research regarding the "laws and facts" surrounding prior FTC actions against medical billing companies and other companies that sold business opportunities. (Id. at ¶¶ 33, 34, 42, 44, 91.) Taylor also researched the earnings potential of medical billers by consulting available statistics and people familiar with the industry. (Id. at ¶¶ 43, 69, 70, 71, 72, 81, 82, 87.) Taylor concluded from his research that the Health Insurance Portability and Accountability Act ("HIPAA") made it beneficial for a physician to file Medicare claims electronically and that any provider still filing paper claims would be motivated to do so. (Id. at ¶ 70.) Taylor believed and continues to believe that all of MBN's practices were legal. (Id. at ¶¶ 31, 45, 46, 86.)

Since at least 2001, Defendants offered and sold medical billing employment opportunities to consumers. (Caceres Resp. to Pl.s Rule 56.1 Statement ("Caceres Resp.") ¶ 25; Am. Answer ¶ 6.) In 2002, Caceres was hired by Taylor to sell the MBN Program. (Caceres Resp. ¶ 19.) Later, in 2002 or 2003, Caceres started a corporation named CQD; Taylor and MBN contracted with CQD to handle telemarketing for the MBN Program. (Id. at ¶¶ 6, 97; Taylor Defs.' Resp. to Pl.'s Statement of Material Facts Not in Dispute in Supp. of Plaintiffs Mot. for Summ. J. ("Taylor Defs.' Resp.")³ ¶ 99; FTC Exs. in Supp. of Mot. for Summ. J. ("FTC SJ") Ex. 1 at 263:23-266:2; Aff. of Daniel A. Zimmerman, May 25, 2007 ("Zimmerman Aff.") Ex. 94 at 52:3-53:11.) Caceres was the president, secretary, treasurer, sole director, and principal owner of CQD. (FTC Facts ¶¶ 13, 20; Caceres Resp. ¶¶ 13, 20; FTC Exs. in Supp. of TRO ("FTC TRO") Ex. 1 Att. B 7-8.) He used his own credit cards to provide startup capital for the company and was actively involved in its day-to-day operation. (Caceres Resp. ¶¶ 13, 100, 101.)⁴ CQD was listed on purchasers' credit card statements as the entity that was paid for the purchase of the MBN Program. (Id. at ¶ 22.)

Caceres characterized his business relationship with Taylor by saying "it was [Taylor's] program and ... verbiage and my job [] to sell it." (FTC Facts ¶ 99.) Caceres's role in the MBN-CQD relationship was to advertise and market the MBN Program, generate leads, and pay for customer service and phone bills. (Id. at ¶¶ 98, 99.) He also hired commissioned salespeople to do telemarketing for CQD. (Id. at ¶ 103.) Taylor occasionally asked Caceres to hire employees for CQD. (Id. at ¶ 102.)

CQD paid MBN between $25 and $40 for each sale. (Id. at ¶¶ 118, 125.) Payments were made by electronic transfer directly into the personal checking account of relief defendant Kalantaryan, Taylor's wife. (Id. at ¶ 124.) Kalantaryan withdrew approximately $6,500 each month from this account as her MBN salary. (Id. at ¶¶ 126-127.)

In January 2005, Caceres and Taylor decided to change the name of MBN to United Career System ("UCS") because they believed UCS was a "better name." (Zimmerman Aff. Ex. 94 at 196:15-200:25; FTC Facts ¶¶ 72-75.⁵) While technically UCS was a d/b/a filed by Caceres on behalf of himself (Second Aff. of Christopher Taylor Identifying Exs. ("Second Taylor Aff.") Ex. 76; Taylor Defs.' Resp. ¶ 72), UCS was not a distinct corporate entity — it was the exact same business as MBN and used essentially the same sales script that was used to telemarket under the MBN name. (FTC Facts ¶¶ 72-74; Zimmerman Aff. Ex. 94 at 196:15-200:22, 206:18-23, 208:2-210:4; FTC SJ Ex. 2 at Pl.'s Ex. 2, Ex. 2 at Pl.'s Ex. 6.)

Taylor testified that all sales representatives were required to sign a Compliance Agreement⁶ which, inter alia, instructed them not to guarantee that purchasers would have success using the MBN program. (Taylor Defs.' Disputed Facts ¶¶ 93-96; Zimmerman Aff. Ex. 92 at 128:11-137:17.) He also testified that, on or before March 11, 2003, he created additional compliance guidelines that sales representatives were required to sign; these guidelines, inter alia, instructed sales representatives not to make earnings representations to consumers using specific dollar amounts. (Taylor Defs.' Disputed Facts ¶ 100; Zimmerman Aff. Ex. 92 at 169:14-179:2.) Taylor states that he intended the guidelines in these documents to comply with the laws governing telemarketing. (Taylor Defs.' Disputed Facts ¶ 101.) The contract between Caceres and Taylor specified that Caceres was also required to follow these compliance guidelines and was not to make any changes to the sales script or rebuttals without Taylor's approval. (Id. at ¶ 102; Zimmerman Aff. Ex. 92 at 177:13-178:20.)

Taylor conferred with customer service lead David Arnold regarding Better Business Bureau complaints to determine whether any particular CQD sales representative was violating the Compliance Agreement, but never identified any such individual. (Taylor Defs.' Disputed Facts ¶ 97; Zimmerman Aff. Ex. 92 at 127:3-130:3, 137:18-138:21.) Before CQD took over as the telemarketer for MBN, Taylor had spoken to one sales representative who had been named in two BBB complaints and informed this representative that he would be terminated if he did not adhere to the Compliance Agreement. (Taylor Defs.' Disputed Facts ¶ 98; Zimmerman Aff. Ex. 92 at 140:16-142:4.)

Taylor has testified that, after CQD took over telemarketing for MBN, "approximately 20,000 sales of the MBN Program were made for prices ranging from $199 to $299. (FTC Facts ¶ 117.) In 2003, CQD totaled $2,030,018 in sales. (Id. at ¶ 122.) From MBN, Taylor earned $32,800 in 2001, $261,580 in 2002, $250,020 in 2003, and $220,420 in 2004. (Id. at ¶¶ 119-121, 123.)

II. Defendants' Representations

A. Earnings representations in print advertisements

Defendants typically promoted the MBN Program in classified advertisements in newspapers and other publications. (Id. at ¶ 26; Am. Answer ¶ 6.) The advertisements stated that consumers could earn significant income working at home processing medical claims and urged consumers to call the listed toll-free telephone number to learn more about the opportunity. (FTC Facts ¶¶ 48-50; Am. Answer ¶ 6.)⁷ A representative advertisement from October 2004 read: "DATA ENTRY Work from home. Flexible Hours! $ $ $ Great Pay! $ $ $ Personal Computer required. 1-800-913-2823 x-100." (FTC Facts ¶ 27.) While with CQD, Caceres created advertising copy for the MBN Program and placed ads like these in newspapers. (FTC Facts ¶¶ 29-30.) CQD placed advertisements in many states nationwide. (Id. at ¶ 28.)

During 2004, CQD ran ads that stated "DATA ENTRY Could Earn $50,000/yr.... Great Pay! ..." (Caceres Resp. ¶ 31; Taylor Defs.' Resp. ¶ 25, FTC SJ Ex. 5.) Defendants dispute the length of time for which the "$50,000/yr." ads ran, but all defendants apparently concede that they ran for at least ten days.⁸ Caceres states that he believed in good faith that these ads were true and...