United States District Court, N.D. Illinois
March 1, 2004.
FEDERAL TRADE COMMISSION, Plaintiff,
WORLD MEDIA BROKERS INC., a/k/a 913062 ONTARIO INC., et al., Defendants
The opinion of the court was delivered by: AMY J. ST. EVE, District Judge
MEMORANDUM OPINION AND ORDER
The United States Federal Trade Commission ("FTC") filed a six count
complaint against World Media Brokers, Inc. ("WMB") and other
corporations*fn1 (collectively, the "Corporate Defendants"), and George
Yemec and Anita Rapp (collectively, the "Individual Defendants"),
alleging violations of Section 5(a) of the FTC Act,
15 U.S.C. § 45(a), and the FTC's Telemarketing Sales Rule, 16 C.F.R. Part 310.
Specifically, the FTC alleges that Defendants illegally sold Canadian
lottery tickets to consumers throughout the United States and
misrepresented to those consumers that such sales were legal.
In Count I, the FTC alleges that Defendants' representations that the
consumer is likely to win a large prize in the Canadian lottery
constitute a deceptive practice, in violation of Section 5
of the FTC Act. In Count II, the FTC alleges that Defendants'
failure to disclose to United States' consumers that selling and
trafficking in foreign lottery tickets is a violation of federal criminal
law constitutes a deceptive practice, in violation of Section 5 of the
FTC Act. In Count III, the FTC alleges that Defendants' representations
to United States' consumers that Defendants can legally sell foreign
lottery tickets to United States' consumers and that the United States'
consumers can legally purchase such tickets constitute deceptive acts or
practices, in violation of Section 5 of the FTC Act. In Count IV, the FTC
alleges that Defendants' representations that the consumer would receive
a substantial monetary award or other prize in the Canadian lottery
constitute a deceptive practice, in violation of Section 5 of the FTC
Act. In Count V, the FTC alleges that Defendants' failure to disclose
that the sale and trafficking of foreign lottery tickets is a crime in
the United States constitutes a violation of Section 310.3(a)(1)(ii) of
the Telemarketing Sales Rule. In Count VI, the FTC alleges that
Defendants made certain false and misleading statements to induce United
States' consumers to purchase foreign lottery tickets or interests, in
violation of Section 310.3(a)(4) of the Telemarketing Sales Rule.
The FTC moved for partial summary judgment on Counts II, III, V, and
VI. For the reasons stated herein, the FTC's motion for summary judgment
is granted as to those counts.
I. Summary Judgment
summary judgment is proper when "the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the affidavits, if
any, show that there is no genuine issue as to any material fact and that
the moving party is entitled to a judgment as a matter of law."
Fed.R.Civ.P. 56(c). A genuine issue of triable fact exists only if "the
is such that a reasonable jury could return a verdict for the
nonmoving party." Pugh v. City of Attica, 259 F.3d 619, 625 (7th
Cir. 2001) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
248, 106 S.Ct. 2505, 2510 (1986)). "Only disputes over facts that
might affect the outcome of the suit under the governing law will
properly preclude the entry of summary judgment." Anderson, 477
U.S. at 248, 106 S.Ct. at 2510. The party seeking summary judgment has
the burden of establishing the lack of any genuine issue of material
fact. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106
S.Ct. 2548, 2552 (1986). A party will successfully oppose summary judgment
only if it presents "definite, competent evidence to rebut the motion,"
Equal Employment Opportunity Comm'n v. Roebuck & Co.,
233 F.3d 432, 437 (7th Cir. 2000). The Court "considers the evidentiary
record in the light most favorable to the nonmoving party, and draws all
reasonable inferences in his favor." Lesch v. Crown Cork & Seal
Co., 282 F.3d 467, 471 (7th Cir. 2002).
II. Local Rule 56.1
The Court first addresses Defendants' failure to comply with the
requirements of Local Rule 56.1, which governs summary judgment briefing
in the Northern District of Illinois. L.R. 56.1. Local Rule 56.1(a)(3)
requires the moving party to provide a "statement of material facts as to
which the moving party contends there is no genuine issue and that
entitle the moving party to a judgment as a matter of law." L.R.
56.1(a)(3). The opposing party must then file "a concise response to the
movant's statement," in which the nonmoving party must "admit or deny
each factual statement proffered by the defendant . . ., and
designate with specificity and particularity those material facts
believed to establish a genuine dispute for trial." Greer v. Board of
Educ, of the City of Chicago, 267 F.3d 723, 727 (7th Cir. 2001);
L.R. 56.1(b)(3)(A). The nonmoving party
may also file a statement of additional facts that require the
denial of summary judgment. L.R. 56.1(b)(3)(B). The moving party must
submit a reply addressing each additional fact. "All material facts set
forth in the statement filed pursuant to section (b)(3)(B) will be deemed
admitted unless controverted by the [reply] statement of the moving
party." Dimmitt & Owens Fin., Inc. v. Superior Sports Prods.,
Inc., 196 F. Supp.2d 731, 737 (N.D. Ill. 2002).
Defendants' Rule 56.1 response is inadequate. Many statements in
Defendants' response include impermissible argument, conclusory
statements, and duplicative responses to separate paragraphs. Instead of
simply admitting or denying the FTC's asserted facts, Defendants
improperly assert legal arguments regarding whether the FTC should have
relied on George Yemec's affidavit and whether certain alleged activity
was in fact legal. Moreover, Defendants repeatedly limit their responses
to the Individual Defendants without referring to the Corporate
Defendants, thereby implicitly admitting that the Corporate Defendants
engaged in the alleged activity. Local Rule 56.1 statements that are full
of argument, evasion, and improper denials defeat the point of Local
Rule 56.1, which is to identify precisely which facts are actually in dispute.
Bordelon v. Chicago Sch. Reform Bd. of Trs., 233 F.3d 524, 528
(7th Cir. 2000). Defendants' failure to adequately dispute the FTC's
material facts, however, does not result in an automatic grant of summary
judgment in the FTC's favor. The Court still must evaluate all facts in
the light most favorable to Defendants, the nonmoving party.
O'Donnell v. City of Chicago, No. 02 C 1847, 2003 WL 22339285,
at *1 (N.D. Ill. Oct. 14, 2003).*fn2
I. Defendants' Attack On The FTC's Evidence
Defendants, in their responses to the FTC's statement of material
facts, assert numerous legal arguments attacking the authenticity and
admissibility of the evidence on which the FTC bases its statement of
material facts. The Court will address those arguments-none of which have
merit-before reciting the undisputed facts.
First, Defendants argue that the FTC improperly obtained the sworn
affidavit of Individual Defendant George Yemec and that the Court,
therefore, should not consider Yemec's affidavit. Yemec submitted his
sworn affidavit in a Canadian proceeding wherein the FTC obtained an
injunction against Defendants that was later dissolved by the Ontario
Superior Court of Justice. Defendants do not argue that the Yemec
affidavit is irrelevant or untrustworthy. Instead, Defendants argue that
they never consented to the FTC's use of the affidavit in this
proceeding, and that Justice Gans of the Ontario Superior Court
"essentially" required the FTC "to return all documents and equipment
immediately and to release Defendants' assets." (R. 43-1, Def.s.' Mot.
to Strike Pl.'s Exs. at 2.) These arguments are misguided because
Defendants' consent is not necessary,*fn3 and because Defendants
mischaracterize Justice Gans's ruling. Justice
Gans never prohibited the FTC from using the documents from the
Canadian proceeding in this proceeding. In fact, Justice Gans
specifically contemplated a ruling from this Court that Defendants cannot
restrict the FTC's use of Defendants' documents from the Canadian
proceeding. (R. 39-1, FTC's Reply Mem. for Partial Summ. J. ("FTC's Reply
Mem.") at 8) ("This Court orders that all the properties, assets,
evidence, and documents of the Defendants . . . shall be returned to
the Defendants forthwith and any copies . . . shall be returned
subject to any order of the United States District Court, Northern
District of Illinois or this Honourable Court." FTC v. Yemec, et
al., Docket No. 02-CV-237070CM3, at 3 (Ontario Sup.Ct. of Justice
Oct. 21, 2003).) The FTC properly relied upon Yemec's sworn affidavit.
Second, Defendants attack the reliability and authenticity of the FTC's
evidence contained in the declaration of the FTC's investigator, Alan
Krause. (R. 38-1, Def.s.' Mem. in Opp. to the FTC's Mot. for Partial
Summ. J. ("Def.s.' Opp. Mem.") at 10.) This attack has no merit.
Defendants filed a motion pursuant to Federal Rule of Civil Procedure
56(f) for an extension of time to allow for needed discovery concerning
the quality and authenticity of the FTC's investigation, which was
conducted by Mr. Krause. (R. 33-1, Def.s.' Rule 56(f) Mot. for Extension
of Time.) The Court granted the motion and gave Defendants an additional
three weeks to file their response brief, expressly to allow them to
depose Mr. Krause. (See Minute Order, Sept, 17, 2003.)
Defendants, however, made no attempt to schedule Mr. Krause's deposition.
(See R. 39-1, FTC's Reply Mem. at 8.) Mr. Krause swore to the
truth of his declaration and the authenticity of the exhibits attached to
his declaration. Defendants had the opportunity to depose Mr. Krause to
support their speculation that Mr. Krause's declaration and exhibits are
"incorrect" and "unreliable," but they chose not to do so.
Defendants also attack certain "inaccurate conclusions" that Mr. Krause
allegedly made in his declaration (R. 38-1, Def.s.' Opp. Mem. at 11-12),
but those alleged conclusions do not relate to the counts addressed in
the FTC's motion for partial summary judgment.
Defendants complain that the FTC relies on evidence that Defendants
"cannot review or dispute" and "cannot investigate." (R. 38-1, Def.s.'
Opp. Mem. at 13.) Defendants refer to specific exhibits and tape
recordings referenced in Mr. Krause's declaration. Defendants, however,
have had more than one year to request and listen to the tape recordings
cited by the FTC as evidence of certain material facts. The FTC made more
than six boxes of supporting documents available to Defendants when the
FTC responded to Defendants' document requests in July 2003. (R. 39-1,
FTC's Reply Mem. at 9.) Defendants cannot now complain that they chose
not to review those documents.
Finally, the Court notes that Defendants have already made binding
admissions as to most of the material facts contained in the FTC's
Rule 56.1 statement because they have failed to respond to the FTC's Requests
for Admission. After failing to timely respond to the FTC's Requests for
Admission, Defendants filed a motion to withdraw their admissions. (R.
35-1, Def.s.' Mot. to Withdraw Admissions Under Rule 36(b).) The FTC did
not oppose the motion, and the Court granted Defendants until September
23, 2003 to respond. Defendants never filed a response. Accordingly,
Defendants' failure to respond to the FTC's Requests for Admission
results in binding admissions of most of the statements in the FTC's
statement of material facts.*fn4 See Fed.R.Civ.P. 36(a);
see also United States v. Kasuboski, 834 F.2d 1345, 1350 (7th
1987) ("Admissions made under Rule 36, even default admissions, can
serve as the factual predicate for summary judgment."); FTC v.
Consumer Alliance, Inc., No. 02 C 2429, 2003 WL 22287364, at *3
(N.D. Ill. Sept. 30 2003).
II. The Corporate Defendants' Activities Relating To Their
Foreign Lottery Ticket Purchasing Business
The Corporate Defendants*fn5 sell foreign lottery tickets and
interests in foreign lottery tickets to consumers throughout the United
States. (R. 30-1, Pl.'s Statement of Material Facts ("FTC's
Rule 56.1 Statement") ¶ 12.) As part of that business, the Corporate
Defendants contact consumers throughout the United States in an attempt
to sell foreign lottery tickets or interests in foreign lottery tickets,
and mail foreign lottery materials to United States' consumers.
(Id. ¶¶ 4, 12.) The Corporate Defendants typically offer
consumers packages of chances in the Canadian lottery, including a
combination of individual chances and "group" chances. (Id.
¶¶ 20, 32.) In these group plays, the consumer buys a share in a group
purchase of lottery tickets and the winnings are shared among the other
members of the group. (Id. ¶ 33.) Packages usually sell for
between approximately $100 and $500. (Id. ¶ 34.) Over the
past twenty years, the Corporate Defendants have employed at least 7,000
individuals in their businesses, and in September 2002-when the FTC filed
the complaint in this case-they employed at least eighty individuals.
(Id. ¶¶ 29-30.)
III. The Corporate Defendants' Representations
The Corporate Defendants' telemarketers call United States' consumers
and represent to them that they are offering group tickets in the
Canadian lottery and that they will provide consumers with their own
individual tickets in the Canadian lottery. (R. 30-1, FTC's
Rule 56.1 Statement ¶¶ 11, 20, 21.) During telephone solicitations, the
Corporate Defendants' representatives do not disclose that it is illegal
for them to sell foreign lottery ticket packages to United States'
consumers, nor do they disclose that it is illegal for United States'
consumers to purchase foreign lottery tickets from the Corporate
Defendants. (Id. ¶¶ 36-37.) The Corporate Defendants trained
their telemarketers to respond to consumers who questioned the legality
of playing the Canadian lottery by denying that it is illegal and
assuring them that the law merely forbids sending tickets-and not other
materials-through the mail. (Id, ¶ 45.) The Corporate
Defendants' telemarketers tell United States' consumers that the
Corporate Defendants are affiliated with, or registered by, the Canadian
government, that they are authorized by the Canadian government, and that
they "specialize" in providing United States residents the opportunity to
play the Canadian lottery. (Id. ¶¶ 39-40.) Several consumers
would not have purchased the Corporate Defendants' products or services
if the consumers had known that the proposed transactions might be
illegal. (Id. ¶ 46.)
Several government agencies and even some consumers have alerted the
Corporate Defendants that their activities may run afoul of federal law.
In 1995, the Department of Justice informed the Corporate Defendants that
the sale of foreign lottery tickets or pools is a criminal offense in the
United States. (Id. ¶ 44.) In 1989, the United States
Postal Service issued a cease and desist order against several of the
defendants in this case, including Individual Defendants
George Yemec and Anita Rapp, forbidding them from using the United
States mails to send material "of any kind relating to any lottery." (R.
29-1, FTC's Summ. J. Mem. at 6 n.6.) Moreover, several consumers have
informed Defendants that they believed that it was illegal for Defendants
to sell foreign lottery interests to United States residents. (R. 30-1,
FTC's Rule 56.1 Statement ¶ 41.)
IV. The Individual Defendants
George Yemec incorporated Corporate Defendant WMB and serves as its
first and only director, president, and secretary. (R. 30-1, FTC's
Rule 56.1 Statement ¶¶ 48-49; R. 38-2, Def.s.' Rule 56.1 Response ¶¶
48-49.) Yemec also served as a corporate officer for Corporate Defendants
624654 Ontario Ltd., 637736 Ontario Ltd., and 537721 Ontario Inc.
(Id. ¶¶ 52-57.) Although he did not have sole control over
the Corporate Defendants, Yemec was responsible for customer service and
for approving the telemarketing scripts for the Corporate Defendants, and
he managed the Corporate Defendants' telemarketing and promotions.
(Id. ¶¶ 59-60, 62.) Yemec never personally made phone calls
or mailed lottery materials to United States' consumers. (R. 38-2,
Def.s.' Rule 56.1 Response ¶¶ 76-77.)
Anita Rapp is also an owner, director, and officer of various Corporate
Defendants. (Id. ¶¶ 63, 66, 71.) Although she did not have
sole control over managing the Corporate Defendants' business affairs,
Rapp managed the Corporate Defendants' telemarketing operations and
day-today financial and administrative affairs, and she arranged for
offshore credit card processing for the Corporate Defendants'
enterprises. (Id. ¶¶ 64-65, 67-68, 70.) Rapp never personally
made phone calls or mailed lottery materials to United States' consumers.
(R. 38-2, Def.s.' Rule 56.1 Response ¶¶ 76-77.)
V. Procedural Background
The FTC filed the complaint in this Court on September 30, 2002,
seeking a preliminary and permanent injunction, an asset freeze,
rescission, restitution or reformation, and other equitable relief
available under 15 U.S.C. § 57b(b). This Court has jurisdiction
pursuant to 28 U.S.C. § 1331, 1337(a), and 1345, and
15 U.S.C. § 57b(a)(1).
On November 26, 2002, the Court entered a stipulated order for
preliminary injunction as to the Individual Defendants and the Corporate
Defendants. (R. 16-1, Stip. Order for Prelim. Inj. as to George Yemec,
Anita Rapp and the Canadian Corporate Def.'s., and Order for Prelim. Inj.
with Asset Freeze and Other Relief as to Def.'s. 1165107 Ontario and Faby
The FTC claims that Defendants violated Section 5 of the FTC Act and
the Telemarketing Sales Rule by making material misrepresentations to
United States' consumers regarding the legality of Defendants' lottery
services. Specifically, the FTC argues that Defendants told consumers
that selling and trafficking in foreign lottery tickets in the United
States is legal.*fn6 These representations are deceptive because selling
and trafficking in foreign lottery tickets is not-as Defendants
represent-legal, but is prohibited by federal law.*fn7
I. The Relevant Statutes
A. The FTC Act
The FTC Act makes it unlawful to engage in unfair or deceptive
commercial practices. Section 5 of the FTC Act prohibits "unfair methods
of competition in or affecting commerce, and unfair or deceptive acts or
practices in or affecting commerce." 15 U.S.C. § 45(a)(1). "[T]o
establish that an act or practice is deceptive, the FTC must establish
that the representations, omissions, or practices likely would mislead
consumers, acting reasonably, to their detriment." FTC v. World
Travel Vacation Brokers, Inc., 861 F.2d 1020, 1029 (7th Cir. 1988).
Misrepresentations of material facts made for the purpose of inducing
consumers to purchase goods or services also constitute unfair or
deceptive acts or practices that are forbidden by Section 5(a).
Id. at 1029. A statement or practice is material if it is likely
to affect the consumer's decision to buy the product or service. See
Section 57b of the FTC Act provides that "[i]f any person, partnership,
or corporation violates any rule under this subchapter respecting unfair
or deceptive acts or practices . . . then the Commission may commence a
civil action against such person, partnership, or corporation for relief
under subsection (b) of this section in a United States district court or
in any court of competent jurisdiction of a State." 15 U.S.C. § 57b(a)(1).
Section 13(b) of the FTC Act provides "[t]hat in proper cases
the Commission may seek and after proper proof, the court may issue, a
permanent injunction." 15 U.S.C. § 53(b). Section 13(b) is often used
by the FTC to pursue violations of Section 5 of the FTC Act. FTC v.
Amy Travel Servs., Inc., 875 F.2d 564, 571 (7th Cir. 1989).
B. The Telemarketing Sales Rule
The Telemarketing Sales Rule, 16 C.F.R. § 310.3(a)(4), "prohibits
sellers and telemarketers from making false or misleading statements to
induce persons to acquire goods or services." FTC v. Growth Plus
Int'l Mktg., Inc., No. 00 C 7886, 2001 WL 128139, at *3 (N.D. Ill.
Jan. 9, 2001). Section 310.3(a)(1)(ii) of the Telemarketing Sales Rule
prohibits sellers and telemarketers "[b]efore a customer pays for goods
or services offered, [from] failing to disclose, in a clear and
conspicuous manner . . . [a]ll material restrictions, limitations, or
conditions to purchase, receive, or use the goods or services that are
the subject of the sales offer." 16 C.F.R. § 310.3(a)(1)(ii). Section
310.3(a)(4) further prohibits telemarketers and sellers from "[m]aking a
false or misleading statement to induce any person to pay for goods or
services." 16 C.F.R. § 310.3(a)(4). It is undisputed that the
Corporate Defendants are "sellers" and "telemarketers" engaged in
"telemarketing" as those terms are defined in the Telemarketing Sales
Rule. 16 C.F.R. § 310.2(r), (t), and (u). The FTC may enforce
violations of the Telemarketing Sales Rule as though they were violations
of Section 5 of the FTC Act. 15 U.S.C. § 6105(b).
II. The FTC Has Shown That The Corporate Defendants'
Representations Regarding The Legality Of Their Activities Are
Based on the undisputed facts, it is clear that the FTC has shown that
the Corporate Defendants' representations regarding the legality of their
activities are deceptive. The Corporate Defendants represented to United
States' consumers that selling and trafficking in foreign lottery tickets
is legal, but 18 U.S.C. § 1301 specifically prohibits such
activity.*fn8 Section 1301 prohibits
mailing or otherwise sending not only actual foreign lottery
tickets but any paper purporting to represent the tickets or interests in
It is a violation of the FTC Act for Defendants to make material
misrepresentations to consumers that were likely to mislead consumers
acting reasonably under the circumstances. World Travel, 861
F.2d at 1029. Here, it is undisputed that during telephone solicitations,
the Corporate Defendants' telemarketers did not disclose that it is
illegal to sell foreign lottery ticket packages to United States'
consumers, nor did they disclose that it is illegal for United States'
consumers to purchase foreign lottery tickets from the Corporate
Defendants. It is further undisputed that when consumers questioned the
legality of playing the Canadian lottery, the Corporate Defendants'
telemarketers were trained to deny that it is illegal to sell and traffic
in foreign lottery tickets, and to state that the law merely forbids
sending tickets-and not other materials-through the mail. The FTC brought
forth unrebutted evidence that several consumers relied on these explicit
claims and would not have purchased the Corporate Defendants' products or
services if the consumers had known that the proposed transactions might
be illegal. Reliance on explicit claims is considered presumptively
reasonable. See World Travel, 861 F.2d at 1029. Accordingly,
Defendants' misrepresentations are material and were likely to mislead
acting reasonably under the circumstances, and thus violate Section
5 of the FTC Act*fn10 and the Telemarketing Sales Rule.*fn11
Defendants assert two arguments in their defense, neither of which has
First, Defendants argue that 18 U.S.C. § 1301 does not prohibit
their activities because they do not actually conduct a "lottery."
Defendants cite United States Postal Serv. v. Amada,
200 F.3d 647 (9th Cir. 2000) for the proposition that their activities do not
constitute a "lottery." Defendants' reliance on Amada, however,
is misplaced. The defendants in Amada were prosecuted under a
different statute, 39 U.S.C. § 3005. Section 3005 prohibits mailings
where the person is "conducting" an illegal private lottery. The
Amada defendants' liability therefore hinged on whether they
actually conducted a lottery. The court determined that defendants did
not violate the statute because they did not actually "conduct" a lottery
themselves, but instead sold tickets for a government-run lottery.
Amada has no bearing on this case because Defendants' liability
does not turn on whether they conducted a lottery. Rather, Defendants'
liability turns on whether they misrepresented to United States'
consumers that it was legal to sell and traffic in foreign lottery
tickets in light of Title 18 Section 1301's prohibition of such
activity. Section 1301 does not limit liability to entities that actually
conduct their own lotteries. Thus, whether Defendants actually conducted
a lottery themselves is irrelevant.
Second, Defendants argue that "the Department of Justice indicated that
18 U.S.C. § 1302
was unconstitutional" (R. 38-1, Def.s.' Opp. Mem. at 4), citing a
letter written by Attorney General Janet Reno to the Speaker of the House
of Representatives, dated September 25, 2000 ("DOJ Letter"). The DOJ
Letter is irrelevant for two reasons. First, the Court need not address
the constitutionality of 18 U.S.C. § 1302 because the FTC has shown
that Defendants' misrepresentations are deceptive in light of
18 U.S.C. § 1301. In other words, the FTC need not prove that Defendants'
misrepresentations are deceptive with respect to all federal
statutes prohibiting activity relating to lotteries. Second, Defendants
mischaracterize the scope of the DOJ Letter. The DOJ Letter expressly
states that it "continues to regard § 1302 as enforceable in a number
of significant applications," and specifically concludes that "the
mailings covered in [this] decision do not include advertisements
concerning state-operated lotteries." Moreover, the DOJ Letter is limited
to "informational or advertisement mailings," as distinguished from the
Corporate Defendants' mailing of tickets and confirmations. The DOJ
Letter does not preclude summary judgment.
The FTC has shown that the Corporate Defendants made material
misrepresentations to United States' consumers that were deceptive under
Section 5 of the FTC Act and Telemarketing Sales Rule, in light of
18 U.S.C. § 1301.
III. The FTC Has Shown That The Individual Defendants Are
It is well-established that individuals may be held liable for
corporate violations of the FTC Act. FTC v. Amy Travel Servs.,
Inc., 875 F.2d 564, 573 (7th Cir. 1989). The FTC must first
establish that the Corporate Defendants engaged in misrepresentations or
omissions of a kind usually relied upon by persons acting reasonably,
which results in consumer injury. Id. After establishing
corporate liability, the FTC must then show that the individuals in
participated directly in the practices or acts, or had the
authority to control them. Id. This authority may be shown "by
active involvement in business affairs and the making of corporate
policy, including assuming the duties of a corporate officer."
Id. Finally, the FTC must establish that the individuals had or
should have had knowledge or awareness of the deceptive practices.
Id. The knowledge requirement does not rise to the level of a
subjective intent to defraud consumers, but is, instead, a knowledge or
awareness of the misrepresentations on the part of the Corporate
Defendants. Id.; FTC v. Windermere Big Win Int'l, No. 98 C
8066, 1999 WL 608715, at*5(N.D. Ill. Aug. 5, 1999).
Based upon the facts deemed admitted as to the Corporate Defendants,
namely the facts that the Corporate Defendants sold foreign lottery
tickets to United States' consumers and represented to United States'
consumers that their activities were legal, the FTC has conclusively
shown that the Corporate Defendants have employed "unfair methods of
competition . . . and unfair or deceptive acts or practices in or
affecting commerce" in violation of the FTC Act. 15 U.S.C. § 45(a)(1).
The Corporate Defendants' representations, omissions, and/or
practices, such as those mentioned above, have misled "consumers, acting
reasonably, to their detriment." World Travel, 861 F.2d at 1029.
Further, the FTC has shown that Yemec and Rapp were actively involved
in the business affairs of the Corporate Defendants and had authority to
control the activities of Corporate Defendants. Authority to control a
company can be established by demonstrating that an individual assumed
the duties of a corporate officer. Amy Travel, 875 F.2d at
573-74. Yemec and Rapp were clearly at the center of the Corporate
Defendants' operations. Yemec incorporated WMB and served as its first
and only director, president, and secretary. Similarly,
Yemec served as a corporate officer for 624654 Ontario Ltd., 637736
Ontario Ltd., and 537721 Ontario Inc. He was responsible for customer
service and for approving the telemarketing scripts for the Corporate
Defendants, and he managed the Corporate Defendants' telemarketing and
promotions. Anita Rapp is also an owner, director, and officer of various
Corporate Defendants, and although she did not have sole control over
managing the Corporate Defendants' business affairs, she managed the
Corporate Defendants' telemarketing operations and day-to-day financial
and administrative affairs, and she arranged for offshore credit card
processing for the Corporate Defendants' enterprises.
The FTC has also shown that Yemec and Rapp had or should have had
knowledge or awareness of the Corporate Defendants' practices. The
knowledge requirement does not have to rise to the level of subjective
intent to defraud consumers. Amy Travel, 875 F.2d at 574. "[T]he
degree of participation in business affairs is probative of knowledge."
Id. The FTC has shown that Yemec and Rapp were actively involved
in the business affairs of the Corporate Defendants. Yemec and Rapp do
not dispute that they knew that their companies were selling foreign
lottery tickets to United States consumers and that their telemarketers
were not telling their consumers that the purchase and sale of foreign
lottery tickets in the United States was illegal. They argue that they
honestly believed that selling foreign lottery tickets in the United
States was legal. But their subjective intent is irrelevant. Amy
Travel, 875 F.2d at 575. Yemec and Rapp share liability for the
Corporate Defendants' violations of the FTC Act and the Telemarketing
Sales Rule. *fn12
Based on the undisputed facts, the FTC has shown that the Corporate
Defendants sold foreign lottery tickets to United States' consumers,
mailed foreign lottery materials to United States' consumers, and
misrepresented to those consumers that their activities were legal. These
activities constitute deceptive practices in violation of Section 5 of
the FTC Act and the Telemarketing Sales Rule. The Individual Defendants
Yemec and Rapp share responsibility for the Corporate Defendants'
deceptive practices. Accordingly, summary judgment is granted in favor of
the FTC as to Counts U, III, V, and VI.