Fed. Trade Comm'n v. Educare Ctr. Servs., Inc.

• Decision Date: 22 October 2019
• Docket Number: EP–19–CV–196–KC
• Citation: 414 F.Supp.3d 960
• Parties: FEDERAL TRADE COMMISSION, and State of Ohio ex rel. Attorney General Dave Yost, Plaintiffs, v. EDUCARE CENTRE SERVICES, INC., et al., Defendants.
• Court: U.S. District Court — Western District of Texas

414 F.Supp.3d 960

FEDERAL TRADE COMMISSION, and State of Ohio ex rel. Attorney General Dave Yost, Plaintiffs,

v.EDUCARE CENTRE SERVICES, INC., et al., Defendants.

EP–19–CV–196–KC

United States District Court, W.D. Texas, El Paso Division.

Signed October 22, 2019

Christopher E. Brown, J. Ronald Brooke, Jr., Federal Trade Commission, Washington, DC, Erin B. Leahy, Office of the Attorney General, Jeffrey Loeser, Columbus, OH, for Plaintiffs.

Aldo R. Lopez, Daniel H. Hernandez, Ray, McChristian & Jeans, P.C., El Paso, TX, Mitchell N. Roth, Roth Jackson Gibbons Condlin, PLC, Genevieve C. Bradley, McLean, VA, for Defendants.

ORDER

KATHLEEN CARDONE, UNITED STATES DISTRICT JUDGE

On this day, the Court considered Defendant Mohammad "Mike" Souheil's Motion to Dismiss for Lack of Jurisdiction ("Souheil Motion to Dismiss"), ECF No. 33, and Relief Defendant 9896988 Canada Inc.'s ("989") Motion to Dismiss for Lack of Jurisdiction ("989 Motion to Dismiss"), ECF No. 40. For the following reasons, the Motions are DENIED .

I. BACKGROUND

The following facts and allegations are taken from Plaintiffs Federal Trade Commission ("FTC") and State of Ohio Attorney General's Complaint for Permanent Injunction and Other Equitable Relief ("Complaint"), ECF No. 9, Plaintiffs' Opposition to Defendant Mohammad Souheil's Motion to Dismiss, ECF No. 54, and Plaintiffs' Opposition to Relief Defendant 9896988 Canada's Motion to Dismiss, ECF No. 56.¹

Plaintiffs are the FTC, an independent federal agency charged with enforcing the Federal Trade Commission Act, 15 U.S.C. §§ 41 – 58, ("FTCA"), and the State of Ohio via its Attorney General, Dave Yost. Compl. ¶¶ 12, 14. Defendant Souheil is a Canadian citizen and co-owner and president of co-defendants Prolink Vision, S.R.L. ("Prolink") and 989, as well as the telecommunications service provider, Globex Telecom Inc. Id. ¶¶ 36, 39. Relief Defendant 989 is a Canadian corporation alleged to have received funds related to the conduct challenged in the Complaint. Id. ¶¶ 51–52, 158–60.

The FTC brings this suit seeking injunctive and other equitable relief pursuant to sections 13(b) and 19 of the FTCA, 15 U.S.C. §§ 53(b), 57b, and the Telemarketing and Consumer Fraud and Abuse Prevention Act ("Telemarketing Act"), 15 U.S.C. §§ 6101 – 08. The FTC challenges Defendants' practices as violations of section 5(a) of the FTCA, 15 U.S.C. § 45(a), which prohibits unfair or deceptive acts or practices in or affecting commerce, and the FTC's Telemarketing Sales Rule ("Telemarketing Rule"), 16 C.F.R. Part 310, which governs the National Do Not Call Registry. Compl. ¶ 1. The State of Ohio brings this action pursuant to the Telemarketing Act, 15 U.S.C. § 6103, empowering an attorney general of any state to bring a civil action to enforce violations, along with the Ohio Consumer Sales Practices Act, Ohio Rev. Code Ann. § 1345.07 (West 2017), and the Ohio Telephone Solicitation Sales Act, Ohio Rev. Code Ann. § 4719.08 (West 2018). Compl. ¶ 2.

Plaintiffs allege that Defendants Souheil and 989—along with individual co-defendants Sam Madi, Wissam Abedel Jilal, and Charles Kharouf, corporate defendants Prolink and Educare Centre Services, Inc. ("Educare"), and Tripletel, Inc., and defendants in the related action FTC v. Madera Merchant Services , 3:19–cv–00195–KC, Madera Merchant Services, LLC and its principals ("Madera")—have engaged in "a deceptive telemarketing scheme" targeting "consumers throughout the United States" in violation of the FTCA, the Telemarketing Rule, and Ohio's Consumer Sales Practices Act and Telephone Solicitation Sales Act. Id. ¶¶ 5, 11.

Since at least February 2016, Defendants have allegedly carried out a scheme to market Educare's credit card interest rate reduction service to U.S. consumers through Prolink's telemarketing operation. Id. ¶ 68. In practice, this means that telemarketers make unsolicited phone calls to consumers with high double-digit interest rate credit cards and offer to provide them with the rate reduction service—which would "reduce the interest rates on the consumers' cards to 0%–10%, or transfer the balance to credit cards with substantially lower interest rates"—in exchange for a fee. Id. ¶¶ 69, 75. The telemarketers tell the consumers that the fee—"which typically ranges from $798 to $1,192"—must be paid upfront in order to obtain the lowered interest rates. Id. ¶ 80.

Prolink's telemarketing and Educare's interest rate reduction service allegedly rely on deceptive practices. Id. ¶¶ 68–93. The phone calls often initiate with recorded voice messages that "offer consumers the opportunity" to obtain lower interest rates and "instruct consumers to press a button on the telephone keypad to hear more." Id. ¶ 70. Pushing the button connects consumers with live Prolink telemarketers, who frequently fail to disclose the seller of the service as Educare, instead providing names "that sound like the name of a bank or credit card company." Id. ¶¶ 71–73. The telemarketers often list the final four digits of the consumers' credit card number in order to create the impression that consumers are speaking with a representative of their bank or credit card company. Id. The telemarketers then obtain consumers' personal information, such as social security number, email address, credit card issuer and number, and bank account and routing numbers. Id. ¶ 79. Though the telemarketers assure consumers that the service will substantially reduce their interest rates and promise a "100% money-back guarantee," the service "does not typically deliver the promised substantial rate reduction" and "do[es] not honor the refund promises." Id. ¶¶ 100, 105–07.

Plaintiffs allege that Prolink's telemarketing calls and Educare's interest rate reduction service violate federal and state statutes and administrative rules. Specifically, Plaintiffs allege the following violations: the FTCA's prohibition on the use of misrepresentations or deceptive omissions of material fact in or affecting commerce, 15 U.S.C. § 45(a), Compl. ¶ 120; the Telemarketing Rule's prohibitions on misrepresenting any debt-relief service in a telemarketing call, 16 C.F.R. § 310.3(a)(2)(x), Compl. ¶ 129, placing telemarketing calls to numbers on the Do Not Call Registry, 16 C.F.R. § 310.4(b)(1)(iii)(B), Compl. ¶ 135, using prerecorded telemarketing messages without prior express permission, 16 C.F.R. § 310.4(b)(1)(v)(A), Compl. ¶ 136, and failing to truthfully and promptly disclose the identity of the seller, 16 C.F.R. § 310.4(d)(1), Compl. ¶ 137; the Ohio Consumer Sales Practices Act's prohibition on engaging in unfair or deceptive practices in consumer transactions, Ohio Rev. Code Ann. § 1345.02 (West 2017), Compl. ¶ 148; and the Ohio Telephone Solicitation Sales Act's regulatory requirements for telemarketers, Ohio Rev. Code Ann. §§ 4719.02(A), 4719.04(A), 4719.06(A), 4719.07 (West 2018), Compl. ¶¶ 155–57.

To collect the fees solicited from consumers, the alleged scheme relies on remotely created payment orders ("RCPOs") drawn from consumers' checking accounts. Compl. ¶¶ 8–9. An RCPO is "a check or order of payment that the payee (typically a merchant or its agent) creates electronically" using the payor-consumer's bank account information. Id. ¶ 57. An RCPO does not require the payor's signature like a conventional check, but rather "bears a statement"—such as "authorized by account holder" or "signature not required"—that indicates the account holder authorized the check. Id. ¶ 58. RCPOs are subject to relatively less regulatory oversight than more common methods of consumer payments, such as automated clearinghouse, credit, and debit transactions. Id. ¶¶ 60–64. In June 2016, the FTC added a prohibition on the use of RCPOs in telemarketing sales to the Telemarketing Rule "because, after an extensive notice and comment process, it found little record of legitimate telemarketing business using RCPOs." Id. ¶ 65.

The fees collected from consumers by Prolink telemarketers for Educare's deceptive interest rate reduction service were allegedly processed by Madera, based in El Paso, Texas, which ran "an unlawful payment processing scheme." Id. ¶ 9. Using the personal information obtained from consumers during the telemarketing calls—such as bank account and routing numbers and personally identifying information—Madera provided "the means to collect payments from consumers through RCPOs." Id. ¶¶ 9, 94. Over the course of the scheme, and with Madera's payment processing services, Defendants withdrew at least $11.5 million from consumers' bank accounts through RCPOs. Id. ¶ 9. More than $7 million of that total was processed after June 13, 2016, when the ban on RCPOs in connection with telemarketing sales was added to the Telemarketing Rule. Id. ¶ 97. Therefore, Plaintiffs claim that Prolink and Educare's payment processing scheme, in partnership with Madera, violates the Telemarketing Rule, 16 C.F.R. § 310.4(a)(9), and the Ohio Consumer Sales Practices Act, Ohio Rev. Code Ann. § 1345.02(A) (West 2017). Id. ¶¶ 131, 150.

Plaintiffs allege the following as to Defendant Souheil individually. Prior to the conduct alleged in the Complaint, between 2008 and 2009, Souheil and co-defendant Jilal "operated a company known as FCS International (‘FCS’), which exploited its membership in an American Express affiliate program to market and sell interest rate reduction services to American Express cardholders." Id. ¶ 37. In 2009, American Express ended its affiliate relationship with FCS after consumers filed complaints that "FCS failed to deliver on its promise" to lower credit card interest rates and "submitted credit card applications on behalf of consumers without authorization." Id. ¶ 38. Souheil is also the director and president of Globex Telecom Inc., "which received more than $1 million in wire payments from Educare," and on behalf of whom Souheil "filed a letter of compliance with the U.S. Federal Communications Commission." Id. ¶ 39.

According to Plaintiffs, since...