Fed. Trade Comm'n v. Credit Bureau Ctr., LLC, Nos. 18-2847 & 18-3310

• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)
• Writing for the Court: Sykes, Circuit Judge.
• Citation: 937 F.3d 764
• Docket Number: Nos. 18-2847 & 18-3310
• Decision Date: 21 August 2019
• Parties: FEDERAL TRADE COMMISSION, Plaintiff-Appellee, v. CREDIT BUREAU CENTER, LLC, and Michael Brown, Defendants-Appellants.

937 F.3d 764

FEDERAL TRADE COMMISSION, Plaintiff-Appellee,
v.
CREDIT BUREAU CENTER, LLC, and Michael Brown, Defendants-Appellants.

Nos. 18-2847 & 18-3310

United States Court of Appeals, Seventh Circuit.

Argued April 17, 2019
Decided August 21, 2019

Michael D. Bergman, Joel Marcus, Attorneys, FEDERAL TRADE COMMISSION, Office of the General Counsel, Washington, DC, Guy G. Ward, Attorney, FEDERAL TRADE COMMISSION, Chicago, IL, for Plaintiff-Appellee.

Stephen R. Cochell, Attorney, THE COCHELL LAW FIRM, P.C., Houston, TX, for Defendants-Appellants.

Before Manion, Sykes, and Brennan, Circuit Judges.

Sykes, Circuit Judge.

Michael Brown is the sole owner and operator of Credit Bureau Center, a credit-monitoring service. (We refer to both collectively as "Brown.") Brown’s websites used what’s known as a "negative option feature" to attract customers. The websites offered a "free credit report and score" while obscuring a key detail in much smaller text: that applying for this "free" information automatically enrolled customers in an unspecified $29.94 monthly "membership" subscription. The subscription was for Brown’s credit-monitoring service, but customers learned this information only when he sent them a letter after they were automatically enrolled. Brown’s most successful contractor capitalized on the confusion by posting Craigslist advertisements for fake rental properties and telling applicants to get a "free" credit score from Brown’s websites.

The Federal Trade Commission eventually took notice. It sued Brown under section 13(b) of the Federal Trade Commission Act ("FTCA"), 15 U.S.C. § 53(b), alleging that the websites and referral system violated several consumer-protection statutes. The Commission sought a permanent injunction and restitution. Relevant here, the district judge found that Brown was a principal for his contractor’s fraudulent scheme and that the websites failed to meet certain disclosure requirements in the Restore Online Shopper Confidence Act ("ROSCA"). Id. § 8403. The judge entered a permanent injunction and ordered Brown to pay more than $5 million in restitution to the Commission.

Brown now concedes liability as a principal for his contractor’s Craigslist scam.

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And he doesn’t dispute that his own websites failed to meet some of ROSCA’s disclosure requirements. So we have no trouble affirming the judge’s decision to hold him liable for both. We also affirm the issuance of a permanent injunction. Brown’s argument there rests on an erroneous understanding of the Eighth Amendment’s Excessive Fines Clause.

But the restitution award is a different matter. By its terms, section 13(b) authorizes only restraining orders and injunctions. But the Commission has long viewed it as also authorizing awards of restitution. We endorsed that starkly atextual interpretation three decades ago in FTC v. Amy Travel Service, Inc. , 875 F.2d 564, 571 (7th Cir. 1989). Since Amy Travel , the Supreme Court has clarified that courts must consider whether an implied equitable remedy is compatible with a statute’s express remedial scheme. See Meghrig v. KFC W., Inc. , 516 U.S. 479, 487–88, 116 S.Ct. 1251, 134 L.Ed.2d 121 (1996). And it has specifically instructed us not to assume that a statute with "elaborate enforcement provisions" implicitly authorizes other remedies. Id. at 487, 116 S.Ct. 1251.

Applying Meghrig ’s instructions, we conclude that section 13(b)’s grant of authority to order injunctive relief does not implicitly authorize an award of restitution. Every reason Meghrig gave for not finding an implied monetary remedy applies here. Most notably, the FTCA has two detailed remedial provisions that expressly authorize restitution if the Commission follows certain procedures. Our current reading of section 13(b) allows the Commission to circumvent these elaborate enforcement provisions and seek restitution directly through an implied remedy.

Stare decisis cannot justify adherence to an approach that Supreme Court precedent forecloses. Accordingly, we overrule Amy Travel and hold that section 13(b) does not authorize restitutionary relief.¹ Because the Commission brought this case under section 13(b), we vacate the restitution award.

I. Background

In January 2014 Brown contracted with Danny Pierce to direct customers to his credit-monitoring service. Brown gave Pierce several functionally identical websites with names like "eFreeScore.com" and "FreeCreditNation.com" to use for referrals. As their names suggest, these websites invited people to sign up for a "free credit report and score." But signing up for the free score also automatically enrolled applicants in Brown’s credit-monitoring service, which charged a monthly subscription fee.

Brown didn’t tell prospective customers about the credit-monitoring service. His websites almost entirely focused on the free credit score and report. Three disclaimers, buried in much smaller font, told consumers that applying for the free offer also enrolled them in an unspecified "membership" subscription that cost $29.94 each month. Customers later learned that this subscription was for credit monitoring when Brown sent them a letter after the automatic enrollment.

Pierce did nothing to clear up this confusion. Indeed, it’s undisputed that his method for drumming up referrals was fraudulent. He subcontracted with Andrew Lloyd, who posted Craigslist advertisements for nonexistent rental properties at bargain prices. Lloyd invited prospective tenants to email the landlord. Posing as

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the "landlord," he then responded and instructed them to obtain a credit report and score through one of Brown’s websites. But once applicants got this "free" information—and were automatically enrolled in the credit-monitoring service—Lloyd stopped replying to emails.

The plan was effective. Pierce quickly became Brown’s most successful recruiter. Over the course of their relationship, Pierce referred more than 2.7 million customers to Brown, generating just over $6.8 million in revenue. Unsuspecting customers were understandably upset. They flooded Brown’s customer-service operators, questioning the monthly subscription charge. They complained that the Craigslist advertisements were scams. And many were blindsided by the fact that requesting a free credit score automatically enrolled them in a costly credit-monitoring service. Brown told his customer-service team to deny any involvement with Pierce’s operation. And although Brown typically agreed to cancel future charges, he often refused to issue refunds. He also instructed his representatives to offer reduced prices to retain customers. Some customers accepted the offer, but others told their credit-card companies to cancel Brown’s charges. Credit-card companies cancelled more than 10,000 of Brown’s charges.

Consumers complained to the Commission, which opened an investigation. In January 2017 it sued Brown under section 13(b) of the FTCA seeking an injunction and restitution. The Commission alleged that the Craigslist advertisements violated the FTCA’s prohibition on "unfair or deceptive acts or practices." 15 U.S.C. § 45(a). The suit also alleged that Brown’s websites violated the same provision of the FTCA, as well as ROSCA, id. § 8403; the Fair Credit Reporting Act ("FCRA"), id. § 1681j(g); and the Free Credit Reports Rule, 12 C.F.R. §§ 1022.130 – .138.

On the Commission’s motion, the judge issued a temporary injunction, froze Brown’s assets, and appointed a receiver to manage his company. Brown and the Commission later filed cross-motions for summary judgment. In addition to contesting liability, Brown argued that section 13(b) doesn’t authorize an award of restitution and, alternatively, that it doesn’t authorize penalties or legal restitution (as opposed to equitable restitution, which requires tracing a plaintiff’s entitlement to a particular account or fund).

The judge ruled for the Commission across the board, holding that Brown violated the FTCA as a principal for the Craigslist scheme and that the websites violated the FTCA, ROSCA, the FCRA, and the Free Credit Reports Rule. The judge issued a permanent injunction that imposed extensive conditions on Brown’s continued involvement in the credit-monitoring industry and ordered Brown to pay $5,260,671.36 in restitution. He also denied Brown’s motion to unfreeze funds to pay his attorneys.

II. Discussion

Brown contests his liability, the permanent injunction, and the restitution award. Different standards of review apply. For liability, we review the summary judgment de novo, viewing the evidence in the light most favorable to Brown and drawing reasonable inferences in his favor. Holloway v. Soo Line R.R. Co. , 916 F.3d 641, 643 (7th Cir. 2019). We review the judge’s decision to enter a permanent injunction for abuse of discretion. SEC v. Yang , 795 F.3d 674, 681 (7th Cir. 2015). Finally, Brown’s challenge to the restitution award raises legal questions, which we review de novo. Breneisen v. Motorola, Inc ., 656 F.3d 701, 704 (7th Cir. 2011).

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A. Liability Issues

The Commission sued under section 13(b) of the FTCA, which by its terms...