FTC v. American Standard Credit Systems, Inc.

CourtUnited States District Courts. 9th Circuit. United States District Courts. 9th Circuit. Central District of California
Citation874 F. Supp. 1080
Decision Date08 August 1994
Docket NumberNo. CV 93-2623 LGB (JRx).,CV 93-2623 LGB (JRx).
PartiesFEDERAL TRADE COMMISSION, Plaintiff, v. AMERICAN STANDARD CREDIT SYSTEMS, INC., et al., Defendants.

COPYRIGHT MATERIAL OMITTED

Rolando Berrelez, Judith Dixon, Federal Trade Com'n Div. of Credit Practices, Washington, DC, for plaintiff F.T.C.

Alexander McDonald, San Diego, CA, for defendants Farmer, Deitel & Lick.

Barry Hovis, Linda Lipscomb, Sadler & Hovis, San Francisco, CA, for third-party defendant First Nat'l.

ORDER RE: PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT AS TO COUNTS THREE, FOUR, AND FIVE

BAIRD, District Judge.

Plaintiff's motion for summary judgment as to counts three, four, and five in Plaintiff's complaint, came on regularly for hearing before this Court on August 8, 1994. After reviewing the materials submitted by the parties, argument of counsel, and all other matters presented to the Court, it is hereby ORDERED that Plaintiff's motion is GRANTED.

I. Procedural Background

On May 5, 1993 the Federal Trade Commission ("FTC") filed this action against American Standard Credit Systems, Inc. ("ASCS") and three of its officers, Robert M. Farmer, Douglas R. Deitel, and Scott T. Lick,1 for allegedly committing deceptive acts and practices in violation of § 5(a) of the Federal Trade Commission Act ("FTCA"), 15 U.S.C. § 45(a). On June 25, 1993 the individual defendants (hereinafter "Defendants") filed a third-party complaint against the First National Bank of Marin ("FNBM") for indemnification.

On February 11, 1994 this Court entered a default judgment against Defendant ASCS. On February 18, 1994 Plaintiff filed a motion for summary judgment against Defendants as to counts three, four, and five in Plaintiff's complaint. By minute Order dated March 28, 1994 this Court denied the motion because Plaintiff failed to properly authenticate documents submitted in support of the motion. On March 4, 1994, FNBM filed a motion for summary judgment as to Defendants' cross-claim, and this Court granted such motion on April 4, 1994. Therefore, the only action that remains is the FTC's complaint against the individual defendants.

A pre-trial conference was scheduled for May 2, 1994, but was not held as a result of bankruptcy petitions filed by Defendants Farmer and Deitel. A portion of Plaintiff's supplement to its memorandum of contentions of fact and law argued that Plaintiff's action was exempt from the automatic stay of § 362 of the Bankruptcy Code, 11 U.S.C. §§ 101 et seq., and that therefore the action should go forward. The Court deemed such argument as a motion to keep the case on active caseload, and scheduled a telephonic hearing for May 26, 1994 at 12:15 p.m. At the hearing the Court granted Plaintiff's motion2 and set a new pre-trial conference date for September 12, 1994 and a new trial date for September 27, 1994.

On June 7, 1994 Plaintiff filed an ex parte application for an order enlarging the time within which Plaintiff could resubmit its motion for summary judgment. This Court granted the ex parte application and gave Plaintiff until July 15, 1994 to resubmit such motion. Plaintiff filed its motion on July 14, 1994, and this motion is now before the Court. This Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1331, 1337(a), 1345, and 15 U.S.C. § 53(b).

II. Undisputed Facts3

The allegedly deceptive practices in this case occurred in connection with ASCS's marketing of VISA and Mastercards for FNBM. In January of 1989 ASCS executed an agreement with FNBM whereby ASCS agreed to provide FNBM credit card marketing, solicitation, application, account processing, and other services related to the establishment of credit card accounts. (Plaintiff's Facts ¶¶ 36-37; Ex. 23.4) ASCS commenced marketing FNBM secured credit cards through various third-party marketers in March of 1989. (Plaintiff's Facts ¶ 39.) As of June of 1989, ASCS had contracted with "SCCP" and Professional Financial Associates ("PFA") to market FNBM secured credit cards. (Plaintiff's Facts ¶ 40.) In July, ASCS contracted with Thom 2 Productions to develop television commercials featuring country recording artist T.G. Sheppard to market secured credit cards. (Plaintiff's Facts ¶ 44.)

Beginning in January of 1990, ASCS expanded its marketing program, employing third-party marketers to promote and advertise FNBM secured credit cards through the use of "900" pay-per-call telephone numbers. (Plaintiff's Facts ¶¶ 45-50, 61.) In January of 1990, ASCS entered into an agreement with Interactive Marketing Concepts ("IMC") relating to the "900" pay-per-call marketing of FNBM's secured credit cards. (Plaintiff's Facts ¶ 49, Ex. 9.) ASCS also entered into a "900 Response Contractor Agreement" ("RCA") with the President of IMC, Donald Hellinger, or his corporate nominee. (Plaintiff's Facts ¶ 50, Ex. 15.) Under this agreement, Hellinger would provide creative scripts, advertising, TV time, and "900" pay-per-call costs associated with marketing the FNBM secured credit card program. Hellinger would receive all revenues from "900" responses, and would forward to ASCS the name and address information of responding consumers along with a $.50 processing fee for each name. ASCS would then send an application form to the responding consumer and would pay Hellinger $20 of the application fee, if any, ultimately received by ASCS. Throughout 1990, ASCS entered into several RCAs with other third-party marketers. (Plaintiff's Facts ¶ 61; Exs. 3, 38, 55-64.)

The RCAs provided that "CONTRACTOR agrees not to make any oral or written representations of any kind regarding the Secured Credit Card Program, VISA and/or MASTERCARD whether in print advertising, scripts, completed TV commercials, live operator or machine answering messages to callers without prior written consent of ASCS." (Plaintiff's Facts ¶¶ 62-64; Exs. 3, 15, 38, 55-64.) Furthermore, on August 24, 1990, Doug Deitel sent a memorandum to all marketing service providers which stated: "A complete copy of all proposed advertising must be submitted in advance and approved in writing before any insertion order is made. This includes all TV commercials, FSI's, Post Cards, Radio, Direct Mail, Etc." (Ex. 44.)

In keeping with this, Farmer, Deitel, and Lick reviewed the marketing materials used to promote FNBM secured credit cards. (Plaintiff's Facts ¶¶ 17, 29-30, 34, 56-58; Exs. 12, 35, 40-42, 48, 49.) ASCS notified third-party marketers in advance of use that all "900" pay-per-call marketing materials promoting FNBM secured credit cards had been approved. (Plaintiff's Facts ¶¶ 69-74; Exs. 11, 35, 41, 42, 48, 49.) The "900" marketing materials used by marketers include exhibits 1, 2, and 17,5 as well as copies of those exhibits with the marketer's own "900" number inserted. (Plaintiff's Facts ¶¶ 52-58; Exs. 36,6 67, 68, 83.) ASCS, through Deitel and Lick, also provided ASCS marketers with sample print advertisements, television commercials, and audio text-scripts to use in marketing FNBM secured credit cards. (Plaintiff's Facts ¶¶ 65-68; Exs. 7, 34.)

Statements in Exhibits 1 and 2, and in virtually identical advertisements used by marketers, include:

ANYONE CAN QUALIFY FOR VISA AND MASTERCARD

Separated? Divorced? Bankrupt? Widowed? Military?

Bad Credit? No Credit?

No Problem!

Make the Call and Get the credit you deserve NOW!

The statement "anyone or everyone can qualify" was prominently featured in many of ASCS's advertisements (Exs. 1, 2, 12, 17, 36, 68, 82, 83, 109.) Furthermore, other statements in ASCS approved advertising promised that even people with past credit problems would be approved for an FNBM secured credit card. (Exs. 1, 2, 12, 67, 68, 82, 83.) However, not everyone could qualify for an FNBM credit card. From May 1989 through July 1991, FNBM had in existence credit granting criteria. (Plaintiff's Facts ¶ 101.) For example, FNBM considered whether an applicant had a current, open bankruptcy proceeding, or a charge-off on any secured bank credit card in determining whether to approve an application. (Plaintiff's Facts ¶¶ 80-81; Exs. 25, 45, 46.)7 Farmer, Deitel, and Lick knew of FNBM's credit granting criteria and knew that FNBM applied that criteria in evaluating applicants. (Plaintiff's Facts ¶¶ 83-88, 93, 95-96, 97-100.)

Furthermore, ASCS and its marketers failed to disclose that there were additional costs and conditions consumers had to meet to qualify for an FNBM credit card. For example, consumers had to have a minimum household income, had to pay an application fee (which Plaintiff contends was $60),8 and had to make a minimum $3009 savings deposit with FNBM to secure their line of credit. (Deitel Dep. pp. 156-57; Exs. 45, 46; Plaintiff's Facts ¶¶ 86, 89-92, 94, 97-99.) Since at least September of 1989 Farmer was aware that applicants had to meet these requirements. (Plaintiff's Facts ¶¶ 86, 89-90; Ex. 54.) Since at least September of 1989 Deitel knew that consumers were required to pay an application fee, and since at least May of 1989 Deitel knew of the savings account and minimum income requirements. (Plaintiff's Facts ¶¶ 91-92, 94; Exs. 45, 46; Deitel Dep. pp. 156-57.) Lick was aware of these qualifying criteria since early 1990. (Plaintiff's Facts ¶¶ 97-99.)

Exhibit 1 was used by third-party marketers between March of 1990 and September of 1990, and Exhibit 2 was used between August of 1990 and July of 1991. (Plaintiff's Facts ¶¶ 52-53; Ex. 47.) Between March of 1990 and July of 1991, third-party marketers used the advertising copy of Exhibits 1, 2, and 17 to advertise the FNBM secured credit cards, but inserted their own "900" telephone numbers. (Plaintiff's Facts ¶ 54.) The cost of calling the "900" pay-per-call numbers listed on Exhibits 1, 2, and 17, as well as other identical advertising using different "900" telephone numbers, was $9.95. (Plaintiff's Facts ¶ 78.)

On the basis of the foregoing facts, Plaintiff claims that Defendants are...

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