Fed. Trade Comm'n v. Nudge LLC
| Docket Number | 2:19-cv-867-DBB-DAO |
| Decision Date | 14 June 2022 |
| Parties | FEDERAL TRADE COMMISSION; and UTAH DIVISION OF CONSUMER PROTECTION, Plaintiffs, v. NUDGE, LLC; RESPONSE MARKETING GROUP, LLC; BUYPD, LLC; BRANDON B. LEWIS; RYAN C. POELMAN; PHILLIP W. SMITH; SHAWN L. FINNEGAN; CLINT L. SANDERSON; DEAN R. GRAZIOSI; and SCOTT YANCEY, Defendants. v. |
| Court | U.S. District Court — District of Utah |
MEMORANDUM DECISION AND ORDER GRANTING IN PART AND DENYING IN PART BOTH [265] PLAINTIFFS' MOTION FOR SUMMARY JUDGMENT AND [270] DEFENDANTS' MOTION FOR SUMMARY JUDGMENT
In this enforcement action, Plaintiffs Federal Trade Commission (FTC) and Utah Division of Consumer Protection (UDCP) claim that Defendants have violated § 5 of the FTC Act [1] the FTC's Telemarketing Sales Rule (TSR), [2] the Utah Consumer Sales Practices Act (UCSPA), [3] Utah's Business Opportunity Disclosure Act (BODA), [4] and Utah's Telephone Fraud Prevention Act (TFPA).[5] Both Plaintiffs and Defendants have moved for summary judgment on most of these claims.[6] Their motions are fully briefed and ready for decision.[7] For the following reasons, both motions are GRANTED IN PART and DENIED IN PART.
BACKGROUND[8]
Defendant Response Marketing Group, LLC (Response) is a Utah limited liability company that sold various real estate training programs and services across the United States until pausing operations pursuant to a stipulated preliminary injunction in this action in December 2019.[9] To understand the claims and allegations against Response in this case, it is helpful to note the successive sales strategy Response utilized to sell its training programs.[10] The strategy began with advertising a free preview event about real estate investing in a designated location through mailers, emails, infomercials and online advertisements.[11] The advertisements for these preview events were frequently marketed under brand names featuring “celebrity” endorsers to attract customers.[12] Defendants Dean Graziosi and Scott Yancey were two of the main “celebrity” endorsers Response used.[13] From 2015 through 2019 alone over 750 000 individuals attended one of Response's preview events.[14] During the preview events, Response's presenters provided a brief overview of multiple types of real estate transactions and investment strategies, focusing primarily on a strategy for flipping houses known as “wholesaling” (wholesale flips).[15] However, the purpose of the preview events was to advertise Response's training programs, particularly a three-day “workshop” that it typically conducted soon after, and in the same geographical location as, the preview event.[16] Response's presenters told attendees that in addition to receiving more training, those who participated in its workshops would receive special access to its “funding network, ” which would enable them to complete real estate transactions without using any of their own money.[17] Attendees were also told that the workshops included access to methods and tools, including software, that would help them find properties at discounted or below-market-value prices.[18] The enrollment fee for Response's workshops typically ranged from $199 to $1, 997.[19]And from January 2015 until the commencement of this action, over 70, 000 individuals enrolled in a workshop at an average cost of approximately $1, 000.[20]
During the three-day workshops, Response offered its customers an opportunity to buy additional “Advanced Training” packages.[21] These packages varied, but they generally included access to additional live training, software, and online training videos and were typically offered to workshop participants for anywhere from $19, 000 to $40, 000.[22] Between 2015 and 2019, over 30, 000 customers purchased an Advanced Training package.[23]
Approximately one month after each three-day workshop, Response's telemarketers called customers who had purchased an Advanced Training package to try to sell them one of Response's “one-on-one coaching” programs.[24] During the initial call telemarketers, called “setters, ” told customers that the program was a unique opportunity to be paired with one of Response's real estate experts or top investors and that they were calling to determine whether the customers would be a good match for it.[25] The setters then proceeded to ask the customers about their finances and financial goals ostensibly for that purpose.[26] If the customers seemed open to participating in the program, the setters said they would make a recommendation to have the customers speak with a “senior consultant.”[27] Shortly thereafter, these customers would receive a call from a second telemarketer, known as a “closer, ” who had been told by the setter how much money the customers had available to pay for a coaching program.[28] If customers desired to purchase a coaching program for the price quoted by the closer, they were transferred to a “registration agent.”[29] In the midst of verifying customers' personal and payment information, registration agents read a script that asked customers to confirm that “no earnings claims ha[d] been presented” and informed them of Response's seven-day cancellation policy.[30]Response's one-on-one coaching packages ranged in price from $1, 495 to almost $38, 000, and at least 5, 143 consumers purchased one between January 2016 and November 2019.[31]
Defendants BuyPD, LLC (BuyPD), and Nudge, LLC (Nudge) are connected to Response in two ways.[32] The first is through business relationships. From 2012 through the end of 2017, BuyPD and Response hosted events known as “Buying Summits” or “Investor Expos” that consumers who had purchased an Advanced Training package were permitted to attend.[33]BuyPD originally bought properties from third parties and sold them to Response's customers at these events, but it began allowing Response's customers to buy directly from the third parties in mid-2016.[34] Response and BuyPD also operated out of the same building in Lindon, Utah from 2015 through 2016.[35] Nudge's business relationship with Response and BuyPD included providing payroll and benefit services as well as consulting services.[36]
The second way BuyPD and Nudge are connected to Response is through management and ownership. Although Defendant Phil Smith is officially the sole owner of Response, it effectively operates as a partnership between Smith and Defendants Brandon Lewis, Ryan Poelman, and Shawn Finnegan (collectively, the “Response Partners”), with each taking a share of Response's profits pursuant to an oral agreement.[37] Smith is Response's CEO.[38] Finnegan- who owned a company acquired by Response in 2016, Evtech Media, LLC (Evtech)-is Response's Vice President and Chief Executive of Sales.[39] Lewis, who was formerly President of Evtech, is an advisor to Response.[40] And Poelman is Response's Director of Operations.[41]BuyPD is owned by Poelman, who is also its CEO, but most of the Response Partners invested in and received distributions from it.[42] And Nudge was established, owned, and managed by Lewis and Poelman to receive compensation for consulting services they provided to Response.[43]
The last individual Defendant, Clint Sanderson, has been Response's President and Chief Operating Officer since May 2015, before which he was Chief Sales Officer for BuyPD.[44]Sanderson reports directly to the Response Partners and has discussed Response's operations and strategies with them in weekly sales and partner meetings and at times during biannual retreats.[45] Sanderson and the Response Partners will be referred to collectively, when necessary, as the “Individual Response Defendants.”
After a multi-year investigation into Response and its affiliates, [46] Plaintiffs filed a complaint against the Corporate Defendants and the Individual Response Defendants on November 5, 2019, alleging that their marketing practices violated federal and Utah law.[47]Plaintiffs also filed a motion requesting that the court grant a temporary restraining order and order Defendants to show cause why a preliminary junction should not issue.[48] On December 19, 2019, the court granted a stipulated preliminary injunction.[49] Almost a year later, Plaintiffs filed an amended complaint, which named Defendants Graziosi and Yancey in addition to those named in the original complaint.[50]
In their amended complaint, Plaintiffs assert a total of 12 claims.[51] In Counts I through III and VI through VIII, Plaintiffs assert that Response made various false or misleading representations in violation of § 5 of the FTC Act and the UCSPA.[52] In Counts IV and XII, Plaintiffs assert that Response engaged in deceptive telemarketing practices in violation of the TSR and TFPA.[53] In Count IX, the UDCP asserts that Response's misrepresentations and related conduct constituted an unconscionable act or practice under the UCSPA.[54] In Counts X and XI, the UDCP asserts that Response violated BODA by failing to file required information and provide required disclosures to consumers.[55] Plaintiffs assert that the remaining Corporate Defendants and the Individual Response Defendants are jointly liable for Response's violations. Finally, in Count V, the FTC asserts that Graziosi and Yancey also violated the TSR by providing substantial assistance to Response even though they knew, or consciously avoided knowing, that Response engaged in acts or practices that violated the TSR.[56]
Since Plaintiffs' amended complaint was filed, the court has resolved multiple dispositive motions. The parties filed cross motions for partial summary judgment on the UDCP's claims under the UCSPA, which the court denied.[57] Defendants Graziosi and Yancey filed a motion...
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