Fed. Trade Comm'n v. Day Pacer LLC
| Docket Number | 19 CV 1984 |
| Decision Date | 01 September 2023 |
| Parties | Federal Trade Commission, Plaintiff, v. Day Pacer LLC, Edutrek L.L.C., Raymond Fitzgerald, Ian Fitzgerald, and David Cumming, Defendants. |
| Court | U.S. District Court — Northern District of Illinois |
In March 2019, the Federal Trade Commission (“FTC”) filed this consumer-protection action against Day Pacer LLC (“Day Pacer”), a telemarketing company that makes calls to generate consumer leads to sell to for-profit education companies. [Dkt. 1, ¶ 1.] The FTC also brings suit against Day Pacer's successor in interest, EduTrek L.L.C. (“EduTrek,” and together with Day Pacer the “LLC Defendants”), and its former President Ian Fitzgerald, managing member Raymond Fitzgerald, and partial owner and manager David Cumming. In Count I, the FTC alleges that Defendants initiated or caused others to initiate telephone calls to phone numbers on the federal Do Not Call List in violation of the FTC's Telemarketing Sales Rule (“TSR”), 16 C.F.R. § 310.4(b)(1)(iii)(B), which is promulgated under the Telemarketing Act, 15 U.S.C. §§ 6101-6108. Count I is based on both (1) calls initiated by the LLC Defendants and (2) calls initiated by other telemarketers that were allegedly acting as the LLC Defendants' agents (the “IBT Partners”). Count II alleges that Defendants violated 16 C.F.R. § 310.3(b) by providing substantial assistance and support to the IBT Partners even though Defendants knew or consciously avoided knowing that those telemarketers were calling numbers on the Do Not Call List in violation of the TSR.
The FTC has moved for summary judgment against all Defendants. [See Dkt. 211.] Day Pacer, EduTrek, and the Fitzgeralds oppose summary judgment and have also cross-moved for summary judgment against the FTC. [See Dkt 227.] Cumming filed a separate opposition to summary judgment and also cross-moved for summary judgment. [See Dkt. 230.] The two sets of Defendants have also adopted one another's summary judgment arguments. [See Dkt. 227 at 58; Dkt. 230 at 6.] Shortly after summary judgment briefing concluded, Cumming passed away. [See Dkt. 244, Statement Noting Party's Death.] The FTC timely filed a motion to substitute the personal representative of Cumming's estate (the “Estate”) as a defendant in this action. [See Dkt. 247.] The Estate opposes the motion. [See Dkt. 263.]
For the reasons discussed below, the FTC's motion for substitution [Dkt. 247] is granted. The Estate is substituted as a defendant in this action. The FTC's motion for summary judgment [Dkt. 211] is granted in part and denied in part. The FTC has demonstrated as a matter of law that Defendants are liable for violating the TSR because the LLC Defendants placed calls to phone numbers on the Do Not Call List (part of Count I). The FTC has not demonstrated as a matter of law that Defendants are liable for calls initiated by the IBT Partners acting as Defendants' agents (the other part of Count I). However, the FTC has also moved for-and is entitled to- summary judgment on its alternative claim in Count II that Defendants have provided substantial assistance and support to at least one other telemarketer while knowing that the telemarketer was calling numbers on the Do Not Call List. Since the FTC is entitled to judgment on only one of its two alternative theories (absent any attempt to analyze the IBT Partners individually), Defendants are entitled to summary judgment on Count I to the extent it is based on calls initiated by IBT Partners.
Given the age of the summary judgment motions and the substitution of the Estate for Mr. Cumming, the Court will require further input from the parties before ordering an appropriate remedy.
Section 5 of the FTC Act declares unlawful “[u]nfair methods of competition” and “unfair or deceptive acts or practices” in or affecting commerce. 15 U.S.C. § 45(a)(1). The FTC has authority to prescribe “rules which define with specificity acts or practices which are unfair or deceptive acts or practices in or affecting commerce,” with certain exceptions that are not applicable here. 15 U.S.C. § 57a(a)(1)(B). Once those rules take effect, “a subsequent violation thereof shall constitute an unfair or deceptive act or practice in violation of section 45(a)(1) .. ..” 15 U.S.C. § 57a(d)(3). The FTC is empowered to bring actions in federal court to enforce violations of Section 5 of the FTC Act and to seek appropriate equitable relief and civil penalties. F.T.C. v. Bay Area Bus. Council, Inc., 423 F.3d 627, 634-35 (7th Cir. 2005). During the time period relevant here, the maximum statutory recovery for each violation of the FTC Act was between $16,000 and $42,530, depending on exactly when the violation occurred. [See Dkt. 211 at 36, n.20.]
The FTC promulgated the TSR to implement the Telemarketing and Consumer Fraud and Abuse Prevention Act's direction that it “prescribe rules prohibiting deceptive telemarketing acts or practices and other abusive telemarketing acts or practices.” 15 U.S.C. § 6102(a)(1). The TSR is codified in Title 16, Part 310 of the Code of Federal Regulations. Violations of the TSR constitute unfair or deceptive acts or practices in violation of section 5(a) of the FTC Act. F.T.C. v. Pacific First Benefit, LLC, 472 F.Supp.2d 974, 980 (N.D. Ill. 2007) (citing 15 U.S.C. § 45(a); 15 U.S.C. § 57a(d)(3); 15 U.S.C. §6102(c)). The TSR defines “telemarketing” to mean “a plan, program, or campaign which is conducted to induce the purchase of goods or services or a charitable contribution, by use of one or more telephones and which involves more than one interstate telephone call....” 16 C.F.R. § 310.2(gg) (emphasis added). “Telemarketer means any person who, in connection with telemarketing, initiates or receives telephone calls to or from a customer or donor.” Id. § 310.2(ff). “Customer means any person who is or may be required to pay for goods or services offered through telemarketing.” Id. § 310.2(n). “Seller means any person who, in connection with a telemarketing transaction, provides, offers to provide, or arranges for others to provide goods or services to the customer in exchange for consideration.” Id. § 310.2(dd).
Pursuant to the TSR, “[i]t is an abusive telemarketing act or practice and a violation of this Rule for a telemarketer to engage in, or for a seller to cause a telemarketer to engage in .. (iii) Initiating any outbound telephone call to a person when: ... (B) That person's telephone number is on the ‘do-not-call' registry, maintained by the Commission, of persons who do not wish to receive outbound telephone calls to induce the purchase of goods or services unless the seller or telemarketer” can demonstrate that the seller either (1) “has obtained the express agreement, in writing, of such person to place calls to that person”; or (2) “has an established business relationship with such person, and that person has not stated that he or she does not wish to receive outbound telephone calls ..” 16 C.F.R. § 310.4(b)(1)(iii)(B) (emphasis added). An “outbound telephone call” means “a telephone call initiated by a telemarketer to induce the purchase of goods or services or to solicit a charitable contribution.” 16 C.F.R. § 310.2(x).
In addition, pursuant to § 310.3(b), it is also “a violation of this Rule for a person to provide substantial assistance or support to any seller or telemarketer when that person knows or consciously avoids knowing that the seller or telemarketer is engaged in any act or practice that violates . § 310.4 of this Rule.” 16 C.F.R. § 310.3(b) (emphasis added).
The facts set forth in this opinion are drawn from the statements and exhibits that the parties filed pursuant to Local Rule 56.1. [See Dkts. 212, 227, 228, 229, 230, 231, 232, 235, 236, 237, 241, 242.] These facts are undisputed except where a dispute is noted.[1]Day Pacer is a company that sold consumer leads to various educational partners. [See Dkt. 229, ¶ 17; Dkt. 227-2, ¶¶ 4-5 (Tatton affidavit).] Day Pacer previously did business under the name EduTrek, among other names. These LLC Defendants purchased data from websites where people entered their contact information, including their phone numbers. [See Dkt. 229, ¶ 15; Dkt. 236, ¶ 4; Dkt. 227-2, ¶ 5 (Tatton affidavit).] Many-but not all-of the websites collecting consumer contact information contained job postings and advertised themselves as job search sites. [Dkt. 229, ¶ 24.]
After purchasing the consumer contact information from the websites, the LLC Defendants gave those phone numbers to what they refer to as “dialer companies” and paid those companies to call the numbers. [Dkt. 236, ¶¶ 20, 22.] If someone answered the call, the dialing vendor then transferred the call to Day Pacer. [Id., ¶ 23.] Day Pacer operated its own 100 to 200 seat call center, which employed agents called College Search Advisers (“CSAs”). [Dkt. 229, ¶ 15.] If a consumer expressed interest in educational opportunities, Day Pacer sold that contact information to one or more educational institutions as a consumer lead. [Dkt. 236, ¶ 35; Dkt. 227-2, ¶¶ 5 & 18 (Tatton declaration).]
In addition to placing their own outbound telephone calls Defendants also contracted with other telemarketing companies, the “IBT Partners,” to place outbound telephone calls to consumers, determine potential eligibility for enrollment in post-secondary education, and transfer the calls to the LLC Defendants for further telemarketing. [See Dkt. 229, ¶ 35 ().] Many of the IBT Partners are located outside of the United States, for instance in India and the Philippines. [Id., ¶ 39.] The LLC De...
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