Fed. Trade Comm'n v. Gill

• Decision Date: 12 September 2001
• Docket Number: No. 00-55122,00-55123,PLAINTIFF-APPELLEE,DEFENDANTS-APPELLANTS,00-55122
• Citation: 265 F.3d 944
• Parties: (9th Cir. 2001) FEDERAL TRADE COMMISSION,, v. KEITH H. GILL; RICHARD MURKEY,
• Court: U.S. Court of Appeals — Ninth Circuit

Page 944

265 F.3d 944 (9th Cir. 2001)

FEDERAL TRADE COMMISSION, PLAINTIFF-APPELLEE, v. KEITH H. GILL; RICHARD MURKEY, DEFENDANTS-APPELLANTS.

No. 00-55122, 00-55123

UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

Argued and Submitted July 10, 2001

Filed September 12, 2001

[Copyrighted Material Omitted]

[Copyrighted Material Omitted]

Keith H. Gill (argued), Woodland Hills, California, for the defendant-appellant in pro per.

Richard Murkey (argued), Woodland Hills, California, for the defendant-appellant in pro per.

Jon Miller Steiger (argued), John F. Daly, and Debra Valentine, Federal Trade Commission, Washington, D.C., for the plaintiff-appellee.

Appeal from the United States District Court for the Central District of California Lourdes G. Baird, District Judge, Presiding. D.C. No. 98-01436-LGB

Before: John T. Noonan, Barry G. Silverman, and Richard A. Paez, Circuit Judges.

Paez, Circuit Judge

Opinion by Judge Paez

It has been said that bad credit is like a "Scarlet Letter."¹ As Americans' reliance on credit has increased, so-called "credit repair clinics" have emerged, preying on individuals desperate to improve their credit records. These organizations typically promise they can have any negative information removed permanently from any credit report . . . for a fee. On September 30, 1996, Congress enacted the Credit Repair Organizations Act ("CRO Act"), 15 U.S.C. §§§§ 1679-1679j, to ensure that the clinics provide potential customers with the information needed to decide whether to employ the services of such an organization and "to protect the public from unfair or deceptive advertising and business practices by credit repair organizations." 15 U.S.C. §§ 1679(b).

The Federal Trade Commission ("FTC" or "Commission") filed the instant action for injunctive and other equitable relief on March 2, 1998, against Defendants Keith H. Gill and Richard Murkey for alleged violations of the CRO Act and the Federal Trade Commission Act, 15 U.S.C. §§ 45(a). Defendants have, since 1995, offered services to remove any type of negative information from consumers' credit reports. Defendants promised a "free consultation," then demanded advance payment for their services.

The district court granted the FTC's motion for summary judgment, permanently enjoined Defendants from participating in the credit repair business, and ordered them to pay $1,335,912.14 as equitable monetary relief (consumer redress, restitution and/or disgorgement). Defendant Murkey raises several arguments on appeal: (1) triable issues of fact exist regarding the alleged false representations and acceptance of payment before services were rendered; (2) the district court abused its discretion in (a) excluding Murkey's exhibits for lack of authentication, (b) denying Murkey's request for a continuance of the summary judgment hearing, and (c) denying Murkey's request for leave to file a supplemental declaration of his custodian of records; and (3) the district court abused its discretion in permanently enjoining Murkey from engaging in the credit repair business and in ordering him to pay $1,335,912.14 as equitable relief. Defendant Gill similarly maintains that triable issues of fact exist regarding his alleged violations of the CRO Act and the FTC Act. Gill further argues that Murkey was an independent contractor and that Gill should not be held liable for Murkey's actions.

We have jurisdiction under 28 U.S.C. §§ 1291, and we affirm.

RELEVANT STATUTES

A. Fair Credit Reporting Act

For over thirty years, Congress has sought to balance the need of creditors for accurate credit information with consumers' interests in accuracy and fair use of such data. In 1970, Congress passed the Fair Credit Reporting Act with the express purpose of requiring "consumer reporting agencies [to] adopt reasonable procedures for meeting the needs of commerce for consumer credit, personnel, insurance, and other information in a manner which is fair and equitable to the consumer, with regard to the confidentiality, accuracy, relevancy, and proper utilization of such information in accordance with the requirements of this subchapter." 15 U.S.C. §§ 1681(b).² Consumer reporting agencies ("CRAs") like Trans Union, Experian, and Equifax must exercise care in accurately and completely reporting credit information. 15 U.S.C. §§§§ 1681c, 1681e. The FCRA limits the length of time that a CRA is permitted to report an adverse item of information. Generally, bankruptcies may be reported for ten years; all other negative information can remain on a report for up to seven years. 15 U.S.C. §§ 1681c(a). Older items are referred to as "obsolete."

The FCRA sets forth a procedure for disputing the completeness or accuracy of an item and obtaining a reinvestigation. When a consumer notifies a CRA of a disputed item, that agency has 30 days to "reinvestigate free of charge and record the current status of the disputed information, or delete the item from the file in accordance with paragraph (5), before the end of the 30-day period[.]" 15 U.S.C.§§ 1681i(a)(1)(A).³ Upon the creditor's certification that the questioned information is accurate, the CRA can reinsert the information in the consumer's file. 15 U.S.C. §§ 1681i(a)(5)(A). Although the FCRA does not mandate reinsertion, the CRA's duty to"follow reasonable procedures to assure maximum possible accuracy of the information concerning the individual about whom the report relates[ ]" effectively compels this result.

Throughout the 1990s, Congress attempted to address problems resulting from the continued growth of the credit reporting industry. In Senate Report 103-209, concerning the Consumer Reporting Reform Act of 1994, the Committee on Banking, Housing and Urban Affairs noted that the industry "maintains 450 million credit files on individual consumers and processes almost 2 billion pieces of data per month." S. Rep. 103-209, at 2-3 (1993), 1993 WL 516162. As the industry grew, so did the inaccuracies. "From 1990 to 1993, the Federal Trade Commission . . . received more complaints regarding consumer reporting agencies than any other industry." Id. at 3. Meanwhile, CRAs had ventured into new areas, "creat[ing] and sell[ing] lists of consumers for general direct marketing solicitations not initiated by the consumer and, through a process known as `prescreening,' sell[ing] more refined lists of credit worthy borrowers for creditors who use the information to extend offers of credit to such borrowers." Id.

B. The Credit Repair Organizations Act

Enter the credit repair clinic. Congress had recognized the abuses by many of the newly emerging credit repair clinics well before it finally enacted the CRO Act in 1996. In 1988, Representative Frank Annunzio described these businesses as "kin to `get rich quick' schemes. They promise fast results and new-found wealth in the form of available credit." 134 CONG. REC. H6707-06 (daily ed. August 9, 1988) (statement of Rep. Annunzio), 1988 WL 175220. The House Report on the Consumer Reporting Reform Act of 1994, the immediate predecessor to the Act passed in 1996, explained further:

[T]hese credit repair businesses, through advertisements and oral representations, lead consumers to believe that adverse information in their consumer reports can be deleted or modified regardless of its accuracy . . . however, accurate, adverse information may be reported for 7 years, or in the case of bankruptcy, 10 years. Therefore, such representations by credit repair clinics are often misleading . . . .

Where credit repair clinics do succeed, however, they often do so through abuse of the reinvestigation procedures . . . consumer reporting agencies must generally delete information that cannot be verified within 30 days of receiving notice of the dispute. Credit repair clinics take advantage of this provision by inundating consumer reporting agencies with so many challenges to consumer reports that the reinvestigation system breaks down, and the adverse, but accurate, information is deleted.

H.R. REP. NO. 103-486 (1994), 1994 WL 164513. Thus, the CRO Act's express purposes are twofold: "(1) to ensure that prospective buyers of the services of credit repair organizations are provided with the information necessary to make an informed decision regarding the purchase of such services; and (2) to protect the public from unfair or deceptive advertising and business practices by credit repair organizations." 15 U.S.C. §§ 1679(b).

The CRO Act became effective on April 1, 1997. Of the prohibited practices listed in the CRO Act, three are involved in the instant appeal: Sections 1679b(a)(1), 1679b(a)(3), and 1679b(b). Section 1679b(a)(1) prohibits any person from

mak[ing] any statement, or counsel[ing] or advis[ing] any consumer to make any statement, which is untrue or misleading (or which, upon the exercise of reasonable care, should be known by the credit repair organization, officer, employee, agent, or other person to be untrue or misleading) with respect to any consumer's credit worthiness [sic], credit standing, or credit capacity to (A) any consumer reporting agency . . . .

15 U.S.C. §§ 1679b(a)(1). Section 1679b(a)(3) prohibits any person from "mak[ing] or us[ing] any untrue or misleading representation of the services of the credit repair organization[.]" Finally, Section 1679b(b) provides that "[n]o credit repair organization may charge or receive any money or other valuable consideration for the performance of any service which the credit repair organization has agreed to perform for any consumer before such service is fully performed." 15 U.S.C. §§ 1679b(b) (emphasis added).

A violation of the CRO Act is to be treated as a violation of the FTC Act. 15 U.S.C. §§ 1679h(b).

C. The Federal Trade Commission Act

Section 5 of the FTC Act, 15 U.S.C. §§ 45(a)(1), has long prohibited "[u]nfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or...