Fed. Trade Comm'n v. Walmart Inc.
| Decision Date | 27 March 2023 |
| Docket Number | 22 CV 3372 |
| Parties | FEDERAL TRADE COMMISSION, Plaintiff, v. WALMART INC., Defendant. |
| Court | U.S. District Court — Northern District of Illinois |
Walmart Inc. provided money transfer services, allowing customers to send and receive funds from its stores. Telemarketers conned consumers into sending money using Walmart's services. The Federal Trade Commission alleges that Walmart knew that it was processing fraudulent money transfers and failed to do enough to protect consumers. The FTC claims that Walmart failed to implement and maintain effective policies, properly train and oversee its employees, warn consumers, or address suspicious transactions. The agency brings claims against Walmart for violations of the Federal Trade Commission Act and the Telemarketing Sales Rule. Defendant moves to dismiss under Rule 12(b)(6). For the reasons discussed below, the motion is granted in part and denied in part.
To survive a motion to dismiss under Rule 12(b)(6), a complaint must state a claim upon which relief may be granted. Fed.R.Civ.P. 12(b)(6). The complaint must contain “sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). In reviewing a motion to dismiss, a court must construe all factual allegations as true and draw all reasonable inferences in the plaintiff's favor. Sloan v. Am. Brain Tumor Ass'n, 901 F.3d 891, 893 (7th Cir. 2018) (citing Deppe v. NCAA, 893 F.3d 498, 499 (7th Cir. 2018)).
A plaintiff alleging fraud must do so with particularity. Fed.R.Civ.P. 9(b); see Borsellino v. Goldman Sachs Grp., Inc., 477 F.3d 502, 507 (7th Cir. 2007) (citations omitted) (Claims that sound in fraud-meaning premised upon a course of fraudulent conduct-can implicate Rule 9(b)'s heightened pleading requirements); Pirelli Armstrong Tire Corp. Retiree Med. Benefits Tr. v. Walgreen Co., 631 F.3d 436, 44647 (7th Cir. 2011) (citation omitted) (Rule 9(b) applies to “allegations of fraud, not claims of fraud.”). They must describe the “who, what, when, where, and how” of the fraud. Menzies v. Seyfarth Shaw LLP, 943 F.3d 328, 338 (7th Cir. 2019) (quoting Vanzant v. Hill's Pet Nutrition, Inc., 934 F.3d 730, 738 (7th Cir. 2019)).
Walmart offered a variety of financial products to its customers, driving traffic to the company's stores and generating significant revenue. [1] ¶¶ 6, 8, 22.[1]Among those products were money transfer services. Id. ¶ 8. Walmart relied on other companies' systems-including those belonging to MoneyGram International, Inc., RIA Financial Services, and The Western Union Company-to facilitate money transfers. Id. ¶¶ 9-11, 13. Walmart acted as an agent of those companies. Id. ¶ 9.
Consumers who wanted to send or receive money at Walmart visited the company's Customer Service Desks and MoneyCenters. [1] ¶ 18. Customers could also begin a money transfer online and then finalize the transaction at a Walmart store. Id. For some time, money transfer senders at Walmart were required to complete a “send form.” Id. ¶ 20.[2]In 2019, however, Walmart stopped using the forms, and instead provided senders with a printout including consumer fraud warnings in small print. Id. For years, Walmart didn't ask senders to present identification unless their transfers exceeded limits set by the money transfer provider. Id. ¶ 21. Walmart began verifying and recording sender ID information for all transactions in January 2018. Id. Customers who sent $3,000 or more were required to provide their social security number, tax identification number, or other identifying information. Id.
Walmart's money transfers were intended to be person-to-person, and weren't meant for business transactions. [1] ¶ 19. The company didn't limit the amount that a consumer could send or receive, and instead relied on its money transfer providers- MoneyGram, Ria, and Western Union-to impose limits. Id.[3] Consumers sending a money transfer from Walmart had to pay with cash or a PIN-based debit card. Id. Consumers also had to pay either a variable or flat fee to Walmart. See id. ¶ 22. Money transfer senders at Walmart were given a unique reference number to track their transfers, and the money being sent was typically available within minutes. Id.
Walmart's providers required that money transfer recipients complete a “receive form” before accessing transferred funds. [1] ¶ 23. Recipients had to provide the transaction reference number, the receive amount, their name, address, telephone number, and information about the sender. Id. Recipients were also required to present government-issued photo ID, but Walmart recorded recipient ID information only for certain transactions. Id. For transfers of $3,000 or more, U.S. recipients were required to provide a social security number, tax identification number, or other identifying information. Id. In 2016, Walmart began requiring ID for all recipients, and the company stopped using the receive forms. Id.
Walmart used its own point-of-sale system to process money transfers and to communicate with its providers. [1] ¶ 12. Walmart also designed and controlled the systems that its employees used to record information about money transfers and to prevent fraud-induced transactions. Id.
For more than a decade, fraudsters used money transfers to steal from their victims, especially U.S. customers. [1] ¶ 14; see id. ¶ 48. Victims of fraud often sent their money from Walmart, id. ¶ 42, and fraud-induced money transfers at Walmart often involved large amounts of money picked up using out-of-state IDs. Id. ¶ 97. Using Walmart's money transfer services, perpetrators of common telemarketing scams (including, in some cases, Walmart employees) received millions of dollars from victimized consumers, many of whom were elderly. See id. ¶¶ 25, 42. By allowing them access to its providers' money transfer systems, Walmart provided an essential service to fraudulent telemarketers, sellers, and con artists. Id. ¶ 25; see id. ¶¶ 41, 48. Fraudsters liked using Walmart because the company's many locations made it convenient for victims, Walmart paid recipients in cash, transferred funds were available within minutes, and recipients could operate anonymously, either because Walmart didn't require an ID check or because fraudsters used fake IDs. Id. ¶ 26.
Consumers who had been deceived by a fraudulent scheme weren't usually in a position to prevent fraud. [1] ¶ 29. Based on false promises or fear of financial or legal consequences, victims felt compelled to complete money transfers. Id. Many consumers also weren't aware that fraud detection and transaction reversal were less likely with money transfers than with other payment mechanisms. Id. Once cash was paid to a money transfer recipient, fraud victims were usually unable to get their money back. Id. ¶ 24. After MoneyGram and Western Union reached agreement with the FTC and many states in 2016 and 2018, customers could receive refunds on fraudulent transactions if money transfer providers or their agents (including Walmart) failed to follow certain anti-fraud policies and procedures. Id.
Walmart told consumers to report fraud to its money transfer providers, who maintained databases of complaints. [1] ¶ 30. Ria, Western Union, and MoneyGram shared complaints with Walmart. Id. Between 2013 and 2018, those companies received at least 226,679 complaints about fraud-induced money transfers sent or received at Walmart, transactions involving at least $197,316,611. See id. ¶¶ 30, 4345.[4] Many of those complaints involved telemarketing scams. Id. ¶ 43. The complaints made to Walmart's providers represented only a small percentage of the actual fraud perpetrated through money transfers at Walmart. Id. ¶ 30. There were more complaints about fraud-induced money transfers at Walmart than at any of the money transfer providers' other agents. Id. ¶ 31.
Walmart knew that its services were used by fraudsters. See [1] ¶¶ 14, 27, 46, 48. MoneyGram, Ria, and Western Union told Walmart about suspicious activity, and alerted the company to certain Walmart stores where twenty-five, fifty, or even seventy-five percent of money transfer activity was fraudulent. See id. ¶ 46.[5]Between 2015 and 2019, at least 101 Walmart stores were responsible for paying out over $100,000 in fraudulent transfers that were complained about, including at least eleven stores that paid out more than $200,000. Id. ¶ 98. The company also knew that many scams that made use of its services-including person-in-need, government agent impersonator, and lottery, sweepstakes, and prize scams-often involved telemarketing. See id ¶¶ 14, 41.[6]
Walmart learned about prosecutions involving fraud perpetrated in its stores. Criminal authorities across the country charged individuals in connection with mass marketing and telemarketing schemes that obtained millions of dollars sent or received at Walmart. [1] ¶ 28; United States v Caballero, No. 16-cr-0124 (E.D. Ark.); United States v. Caballero, No. 16-cr-0201 (D. Minn); United States v. Mirabel, No. 16-cr-0269 (N.D. Tex.); United States v. Pando, No. 17-cr-0046 (N.D. Miss); United States v. Labra, No. 17-cr-0314 (D. Md.); United States v. Gohill, No. 17-cr-0212 (E.D. Wis.); United States v. Patel, No. 17-cr-0094 (E.D. Wis.); United States v. Marcks, No. 19-cr-0315 (D. Nev.); United States v. Parmar, No. 19-cr-0160 (E.D. Va.); United States v. Hines, No. 17-cr-1038 (N.D. Iowa); United States v. Smith, No. 21-cr-0372 (M.D. Pa.); United States...
To continue reading
Request your trial