F.T.C. v. Gill

• Decision Date: 03 November 1999
• Docket Number: No. CV98-1436LGBMCX.,CV98-1436LGBMCX.
• Citation: 71 F.Supp.2d 1030
• Court: U.S. District Court — Central District of California
• Parties: FEDERAL TRADE COMMISSION Plaintiff, v. Keith GILL, an individual doing business as the Law Offices of Keith Gill, and Richard Murkey, an individual, Defendant.

71 F.Supp.2d 1030

FEDERAL TRADE COMMISSION Plaintiff, v. Keith GILL, an individual doing business as the Law Offices of Keith Gill, and Richard Murkey, an individual, Defendant.

No. CV98-1436LGBMCX.

United States District Court, C.D. California.

November 3, 1999.

COPYRIGHT MATERIAL OMITTED

John D. Jacobs, Raymond E. McKown, Jennifer Larabee, Los Angeles, CA, for Plaintiff.

Herbert Davis, Herbert Davis Law Offices, Los Angeles, CA, David P. Cwiklo, David P. Cwiklo Law Offices, Woodlandhills, CA, for Defendant.

ORDER GRANTING FEDERAL TRADE COMMISSION'S MOTION FOR SUMMARY JUDGMENT

BAIRD, District Judge.

I. INTRODUCTION

Defendants run a service that advertises that it can remove "negative information" from credit reports. The FTC brings the instant suit against defendants under (1) the Credit Repair Organization Act for defendants' allegedly misleading statements and illegal billing practices and (2) the FTC Act for deceptive practices.

II. FACTUAL AND PROCEDURAL BACKGROUND

A. THE PARTIES

Defendant Gill is a licensed attorney who does business as a sole practitioner as the Law Offices of Keith Gill. See FTC's Statement of Uncontroverted Facts at 3 ("FTC's Statement").¹ In addition to a general law practice, Gill has offered credit repair services to consumers since 1995. See id. Defendant Murkey is a retired attorney. See id. at 7. Since 1995, in conjunction with Gill's office, Murkey has offered credit repair services to consumers. See id. at 3.²

B. THE REPRESENTATIONS

Through the use of radio broadcasts, ads in various newspapers, and phone conversations and personal meetings, the FTC alleges that defendants "prey on consumers with bad credit histories" by offering them a free initial consultation and then using that consultation to convince consumers that defendants can remove all of the negative information on their credit report. See FTC's Mem. P. & A. Sup. Mot. S.J. at 6 ("FTC's Mem.").

Consumers who contact defendants have the option of visiting the office or dealing completely over the phone. See FTC's Statement at 4. Consumers who go to the office are asked to bring a copy of their credit report or asked to sign an authorization so that defendants can obtain a copy. See id. Consumers conducting business over the phone either fax a copy of their report, or an authorization form. See id.

Gill does not usually participate in the initial consultation, Murkey does. See id. Murkey usually uses the consultation to explain the type of service he plans to offer, discusses costs, and discusses the positive results that he has obtained for previous customers. See Murkey's Statement of Genuine Issues of Material Facts at 10 ("Murkey's Statement"). According to the FTC, defendants tell consumers that accurate and non-obsolete information can and will be removed from a consumer's report if they retain defendants' service. See FTC's Statement at 5. Defendant Murkey, however, states that potential customers are told that defendants "will use [their] best efforts to get negatives removed, and tells [the potential customer] of his prior success in getting different types of negatives removed, including what plaintiff describes as `accurate non-obsolete' negative information." See Murkey's Statement at 11. Defendants also tell their customers that credit reports will begin improving in as little as a month to six weeks. See FTC's Statement at 5.

C. PAYMENT ISSUES

The starting point for the fees charged to consumers is set forth in a fee schedule. See FTC's Statement at 5.³ Consumers are typically given a written estimate of the total costs, with each negative item listed separately. See id. at 16. Consumers are then required to make a down-payment and commit to a monthly payment plan for payment of the balance. See id.⁴ After consumers make the down payment, defendants bill the consumers on a regular basis. See id. at 17.⁵ Defendants have continued to bill consumers who had attempted to cancel their contract. See id.

D. PROCEDURAL HISTORY

The FTC filed this complaint on March 2, 1998. The case was originally assigned to Judge Irving Hill. Also on March 2, 1998, the FTC sought an order temporarily placing the case under seal, a temporary restraining order, an asset freeze, an order permitting expedited discovery, and an order to show cause why a preliminary injunction should not be issued. Judge Hill denied the request to place the case under seal, denied plaintiff's request to hear the temporary restraining order without notice to the defendants, and ordered the FTC to serve all the papers filed in the case on defendants.

On March 31, 1998, the case was reassigned to this Court. On April 21, 1998, the FTC, Murkey, and Gill entered into a stipulation as to the preliminary injunction. The parties agreed, inter alia, that Murkey and Gill would not represent that anyone can substantially improve most consumer's credit reports or profile by permanently removing bankruptcies, tax liens, late payments, collection accounts, or other evidence of delinquencies from the consumer's credit reports; that they would not violate any provision of the Credit Repair Organization Act, 15 U.S.C. § 1679 et seq. by, inter alia, charging or receiving money for credit repair services before the services are fully performed, making statements to credit reporting agencies that defendants knew or had reason to believe were untrue or misleading, making or using any untrue or misleading representation of their services; that they would not dissipate any assets in their possession; that they would not dispose of any documents relating to this litigation; that they would turn over to the FTC a detailed accounting of all funds they have received for credit repair services; that they would maintain a detailed accounting of all the uses and changes in status quo of any assets they own; that they would prepare and turn over to the FTC a financial statement; that they would return to the FTC all payments made by customers not yet cashed or received; and that they would enjoin from exercising any control over any business entity without first giving notice to the FTC. See April 21, 1998 Murkey Stip.; April 21, 1998 Gill Stip.

Discovery then proceeded amidst a constant state of battle, culminating in the plaintiff's filing of the instant summary judgment motion on September 3, 1999. On September 14, 1999, defendant Gill filed a brief opposition and joined in Murkey's opposition. On September 15, 1999, defendant Murkey filed his opposition. The FTC filed its reply on September 20, 1999.⁶

III. STANDARD FOR SUMMARY JUDGMENT

Rule 56 of the Federal Rules of Civil Procedure provides that a court shall grant a motion for summary judgment if "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). Material facts are those that may affect the outcome of the case. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). A dispute as to a material fact is genuine if there is sufficient evidence for a reasonable jury to return a verdict for the nonmoving party. See id.

The moving party for summary judgment bears the initial burden of demonstrating the absence of a genuine issue of material fact for trial. See Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986). When the moving party has the burden of proof on an issue at trial, it must affirmatively demonstrate that no reasonable trier of fact would find other than for the moving party. Conversely, on an issue for which the nonmoving party has the burden of proof at trial, the moving party need only point out "that there is an absence of evidence to support the nonmoving party's case." Id. at 325, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265.

Where the operative facts are substantially undisputed, and the heart of the controversy is the legal effect of such facts, such a dispute effectively becomes a question of law that can, quite properly, be decided on summary judgment. See Odle v. Heckler, 707 F.2d 439, 440 (1983). However, summary judgment should not be granted where contradictory inferences may be drawn from undisputed facts. See Braxton-Secret v. A.H. Robins Co., 769 F.2d 528, 531 (1985). In such a case, the non-moving party must show that the inferences it suggests are reasonable in light of the competing inferences. See Matsushita Elec. Indus. Co. v. Zenith Radio Co., 475 U.S. 574, 588, 106 S.Ct. 1348, 1357, 89 L.Ed.2d 538 (1986).

IV. ANALYSIS

A. THE FAIR CREDIT REPORTING ACT

The Fair Credit Reporting Act ("FCR Act") was enacted to assure fair and accurate credit reporting. See 15 U.S.C. § 1681(a)(1). The FCR Act regulates the credit reporting industry by limiting the type of information credit reporting agencies ("CRA") may compile, the manner in which it may be reported, and the procedures for ensuring the accuracy of the information. See id. § 1681a-c, e, 1. The law permits a CRA to obtain accurate negative information from a review of public records or information that can be provided by a public agency. See generally, id. § 1681 et seq. Additionally, a CRA is entitled, under certain circumstances, to gather information for the purpose of preparing an investigative consumer report. See id. § 1681d.

Generally, a CRA has a duty of reasonable care in the preparation of consumer reports. See 21 C.J.S. Credit Reporting Agencies § 6, at 358 (1990). Because preparation of a consumer credit report may be viewed as a continuing process, the obligation to ensure accuracy arises with every addition of information. See id. But to require an agency to update independently information after receipt and verification would burden commercial dealings beyond any required legislative mandate. See id. As...