FTC v. Wilcox

• Citation: 926 F. Supp. 1091
• Decision Date: 29 September 1995
• Docket Number: No. 93-6913-CIV-FERGUSON.,93-6913-CIV-FERGUSON.
• Parties: FEDERAL TRADE COMMISSION, Plaintiff, v. Scott WILCOX, et al., Defendant.
• Court: U.S. District Court — Southern District of Florida

926 F. Supp. 1091

FEDERAL TRADE COMMISSION, Plaintiff, v. Scott WILCOX, et al., Defendant.

No. 93-6913-CIV-FERGUSON.

United States District Court, S.D. Florida.

September 29, 1995.

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Gerald B. Wald, Gerald B. Wald, Receiver, Miami, FL, pro se.

Samuel J. Flanagan, United States Attorney's Office, Fort Lauderdale, FL, for F.T.C.

Sheridan K. Weissenborn, Papy & Weissenborn, P.A., Coral Gables, FL, Frank J. Shannon, III, Atlanta, GA, for Scott Wilcox, Linda Wilcox and Direct Response, Inc.

ORDER AFFIRMING MAGISTRATE'S REPORT AND RECOMMENDATION

FERGUSON, District Judge.

THIS CAUSE is before the Court on Plaintiff's Motion for Summary Judgment (D.E. 102) and Defendants' Motion for Summary Judgment (D.E. 114).

THE MATTER was referred to the Honorable Barry S. Seltzer, United States Magistrate Judge. A Report and Recommendation dated September 7, 1995 has been filed, recommending the following:

1. That Plaintiff's Motion for Summary Judgment (D.E. 102) be GRANTED;

2. That Defendants' Motion for Summary Judgment (D.E. 114) be DENIED;

3. That the Court issue a permanent injunction prohibiting the defendants from any involvement, direct or indirect, in the development, marketing, or sale of any promotion by direct mail and from making misrepresentations when they market promotions or sell products or services other than by direct mail;

4. That the Court enter judgment holding the defendants jointly and severally liable for consumer redress in the amount of $22,024,950;

5. That the permanent receiver, Gerald Wald, be directed to liquidate any remaining assets of the receivership defendants, take all appropriate steps to maximize the amount of funds available for consumer redress, formulate a plan for the distribution of assets to consumers for Court approval, and administer the distribution of such assets pursuant to further order of the Court.

The defendants have filed objections to the Report. The Court having reviewed these objections, the pertinent portions of the file, and being otherwise fully advised, it is

ORDERED AND ADJUDGED that United States Magistrate Judge Barry S. Seltzer's Report and Recommendation of September 7, 1995 is AFFIRMED and based thereon, Defendants' Objections thereto are OVERRULED. It is further

ORDERED AND ADJUDGED that the Report and Recommendation shall be incorporated into a separate Final Judgment and Order for Permanent Injunction.

DONE AND ORDERED.

REPORT AND RECOMMENDATION TO DISTRICT JUDGE

SELTZER, United States Magistrate Judge.

THIS CAUSE is before the Court upon the Plaintiff's Motion for Summary Judgment (DE 102) and the Defendants' Motion for Summary Judgment (DE 114) and was referred to United States Magistrate Judge Barry S. Seltzer pursuant to 28 U.S.C. § 636 and the Magistrate Rules of the Local Rules of the Southern District of Florida.

PROCEDURAL HISTORY

The Federal Trade Commission ("FTC") brings this action under § 13(b) of the Federal Trade Commission Act ("FTCA"), 15 U.S.C. § 53(b), against Scott Wilcox, Linda Wilcox, and Direct Response, Inc. The FTC seeks permanent injunctive relief prohibiting the defendants from engaging in unfair or deceptive acts and practices in violation of § 5(a) of the FTCA, 15 U.S.C. § 45(a). The FTC also seeks such other equitable relief as is necessary to redress the injury to consumers that resulted from the defendants' alleged violations. On November 4, 1993, following an evidentiary hearing¹, the District Court entered an Order for Preliminary Injunction (DE 37), which, inter alia, enjoined the defendants from engaging in certain specified acts relating to their direct mail businesses and further prohibited them from selling or transferring their assets. The Court also appointed a permanent receiver to take control of and oversee the defendants' property. The parties have now filed cross-motions for summary judgment.

SUMMARY JUDGMENT MOTIONS

1. Background

The FTC alleges that the defendants have engaged in unfair trade practices in connection with a massive direct mail operation.² During a three year period, the defendants, working under a variety of trade names, mailed to consumers at least 50 million solicitations (Answer, ¶ 10, 18; Admissions³ No. 82, 91, 92; FTC Ex. 56 at 002118); in a 14 month period alone, the defendants sent more than 35 million pieces of mail at of cost of more than $7 million (Tr. 41). The response to these solicitations was tremendous; the defendants received hundreds of thousands of pieces of mail, averaging on each day eighteen U.S. Postal Service mail tubs filled with letters one and a half feet high. (G. Wrye Dep. 29; Tr. 35-36).

The defendants' solicitations to consumers fell into two general categories: "holding money" and "guaranteed award" promotions. The "holding money" solicitations represented that the defendants were holding a significant amount of money (typically between $4,500 and $5,178) to which the consumer was entitled. The solicitations stated that the consumers would forfeit the money unless they immediately sent a claiming fee (always under $20) to one of the defendants' companies. The names of the companies that were listed in the promotions implied that the sponsors were in the business of distributing money: Bureau of Cash Rewards (FTC Ex. 11); Center for Refund Services (FTC Ex. 12, 13); Sweepstakes Control Bureau (FTC Ex. 14-16); Unawarded Cash Bureau (FTC Ex. 17); and, Unclaimed Funds Network (FTC Ex. 18).⁴

The "guaranteed award" solicitations notified customers that they had been selected to receive one or more awards, prizes, or free gifts. The solicitations described these items as "valuable," "fabulous," or "choice" and identified such items as automobiles, cameras, video equipment, and large amounts of cash. To claim the award, the consumer was required to send a fee, always under $20. As with the "holding money" solicitations, the names of the "guaranteed award" sponsors suggested that they were in the business of distributing awards: Award Notification Center (FTC Ex. 20); Gift Claim Center (FTC Ex. 25); Winners Claim Dispatch (FTC Ex. 26-27); and, Official Winner (FTC Ex. 28).⁵

2. Standard of Review

Under Federal Rule of Civil Procedure 56(c), summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there are no genuine issues as to any material fact and that the moving party is entitled to judgment as a matter of law...." An issue is "genuine" if a "reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). A fact is "material" if it must be decided in order to resolve the substantive claim or defense to which the motion is directed. Id.; Hairston v. Gainesville Sun Publishing Co., 9 F.3d 913 (11th Cir.1993).

The burden is on the moving party to establish the absence of a genuine issue as to any material fact. Adickes v. S.H. Kress and Co., 398 U.S. 144, 157, 90 S.Ct. 1598, 1608, 26 L.Ed.2d 142 (1970). Once the movant has satisfied its initial burden, the nonmoving party must then go beyond the pleadings to rebut any facts properly presented; it may do so through affidavits or other evidence showing the existence of genuine issues of material fact for trial. Fed.R.Civ.P. 56(e); Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87, 106 S.Ct. 1348, 1355-56, 89 L.Ed.2d 538 (1986); Adickes, 398 U.S. at 160, 90 S.Ct. at 1610; Hairston, 9 F.3d at 918.

In considering the motion, the Court must construe the evidence and the inferences drawn from the underlying facts in the light most favorable to the party opposing the motion. United States v. Diebold, Inc., 369 U.S. 654, 655, 82 S.Ct. 993, 994, 8 L.Ed.2d 176 (1962). Furthermore, facts asserted by the party opposing a summary judgment motion must be regarded as true if supported by affidavit or other evidentiary material. Coke v. General Adjustment Bureau, 640 F.2d 584, 595 (5th Cir.1981) (quoting 10 C. Wright and A. Miller, Federal Practice and Procedure, § 2727 at 524-30 (1973)).

3. Legal Standards and Analysis

Section 5(a) of the FTCA declares unlawful "unfair or deceptive acts or practices in or affecting commerce,"⁶ and the statute empowers the FTC to prevent such acts or practices. 15 U.S.C. § 45(a)(1) and (2). To establish that an act or practice is deceptive, the FTC must show that the defendants made a material representation or omission that is likely to mislead consumers acting reasonably under the circumstances. FTC v. Atlantex Assocs., 1987-2 Trade Cas. (CCH) ¶ 67,788 at 59,252, 1987 WL 20384 (S.D.Fla.1987), aff'd, 872 F.2d 966 (11th Cir. 1989). See also FTC v. World Travel Vacation Brokers, Inc., 861 F.2d 1020, 1029 (7th Cir.1988); Southwest Sunsites, Inc. v. FTC, 785 F.2d 1431, 1436 (9th Cir.), cert. denied, 479 U.S. 828, 107 S.Ct. 109, 93 L.Ed.2d 58 (1986); FTC v. Patriot Alcohol Testers, Inc., 798 F.Supp. 851, 855 (D.Mass.1992). Express claims or deliberately-made implied claims used to induce the purchase of a particular product or service are presumed to be material. Thompson Medical Co., Inc. v. FTC, 104 F.T.C. 648 (1984), aff'd, 791 F.2d 189 (D.C.Cir.1986), cert. denied, 479 U.S. 1086, 107 S.Ct. 1289, 94 L.Ed.2d 146 (1987); FTC v. Kitco of Nevada, Inc., 612 F.Supp. 1282, 1291 (D.Minn.1985). Explicit deception is not necessary to a finding of violation under § 5(a). "Deception may be accomplished by innuendo rather than by outright false statements.... It is sufficient that deception is possible." Regina Corp. v. FTC, 322 F.2d 765, 768 (3rd Cir.1963).

The evidence submitted by the FTC amply demonstrates that the defendants' express and implied representations about both the nature of the solicitations and the cash and awards to be received created a false or misleading...