The opinion of the court was delivered by: JOHN W. DARRAH, District Judge
MEMORANDUM OPINION AND ORDER
Plaintiff, the Federal Trade Commission (the "FTC"), filed suit against
Defendants, Bay Area Business Council, Inc.; Bay Area Business Council
Customer Service Corporation; American Leisure Card Corporation; Bay
Memberships, Inc.; Sr. Marketing Consultants, Inc.; Special
Technologies, Inc.; Peter J. Porcelli, II; and Bonnie Harris. The FTC
alleged Defendants violated the Federal Trade Commission Act,
15 U.S.C. § 45(a), and the Telemarketing Sales Rule,
16 C.F.R. § 310.3(a)(4). Presently before the Court is the FTC's motion
for summary judgment against the above-named Defendants. For the
following reasons, that motion is granted.
Summary judgment is appropriate when no genuine issue of material fact
exists and the moving party is entitled to judgment as a matter of law.
Fed.R.Civ.P. 56(c); Cincinnati Ins. Co. v. Flanders Elec. Motor Serv.,
Inc., 40 F.3d 146, 150 (7th Cir. 1994). "One of the principal purposes of
the summary judgment rule is to isolate and dispose of factually
unsupported claims or defenses. . . ." Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986)
(Celotex). Thus, although the moving party on a motion for summary
judgment is responsible for demonstrating to the court why there is no
genuine issue of material fact, the non-moving party must go beyond the
face of the pleadings, affidavits, depositions, answers to
interrogatories, and admissions on file to demonstrate, through specific
evidence, that a genuine issue of material fact exists and to show that a
rational jury could return a verdict in the non-moving party's favor.
Celotex, 477 U.S. at 322-27; Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
254-56 (1986) (Anderson); Matsushita Elec. Indus. Co. v. Zenith Radio
Corp., 475 U.S. 574, 586-87 (1986) (Matsushita); Waldridge v. Am. Hoechst
Corp., 24 F.3d 918, 923 (7th Cir. 1994).
Disputed facts are material when they might affect the outcome of the
suit. First Ind. Bank v. Baker, 957 F.2d 506, 507-08 (7th Cir. 1992).
When reviewing a motion for summary judgment, a court must view all
inferences to be drawn from the facts in the light most favorable to the
opposing party. Anderson, 477 U.S. at 247-48; Popovits v. Circuit City
Stores, Inc., 185 F.3d 726, 731 (7th Cir. 1999). However, a metaphysical
doubt will not suffice. Matsushita, 475 U.S. at 586. If the evidence is
merely colorable or is not significantly probative or is no more than a
scintilla, summary judgment may be granted. Anderson, 477 U.S. at
Defendants failed to respond to the FTC's motion for summary judgment
Rule 56.1(a) Statement of Facts. Instead, Defendants submitted a
three-page response brief asking for "an evidentiary presentation at
trial" with "affidavits" stating unsupported and irrelevant conclusions.
Defendants' failure to comply with Rule 56.1(b) results in accepting as
true all facts set out in a Rule 56.1(a) statement. See Smith v.
Lamz, 321 F.3d 680, 682-83 (7th Cir. 2003). Even though Defendants failed to respond to the FTC's statement of material facts and
such facts are deemed admitted, the FTC's motion for summary judgment
will only be granted if it can demonstrate that there is no genuine issue
of material fact and that they are entitled to judgment as a matter of
law. See Johnson v. Gudmundson, 35 F.3d 1104, 1112 (7th Cir. 1994).
Accordingly, the undisputed facts, for the purposes of this motion, taken
from the FTC's Local Rule 56.1(a) statement of material facts (referred
to herein as "Pl.'s 56.1") and exhibits, are as follows.
The FTC is an independent agency of the United States created by
statute, 15 U.S.C. § 41-58. The FTC is charged with enforcement of
Section 5(a) of the Federal Trade Commission Act (the "FTC Act"),
15 U.S.C. § 45(a), which prohibits unfair or deceptive acts or practices
in or affecting commerce. The FTC also enforces the Telemarketing Sales
Rule, 16 C.F.R. Part 310, which prohibits deceptive or abusive
telemarketing acts or practices. The FTC is authorized to initiate
federal district court proceedings, by its own attorneys, to enjoin
violations of the FTC Act and the Telemarketing Sales Rule, and secure
equitable relief as may be appropriate in each case, including
restitution for injured consumers, pursuant to 15 U.S.C. § 53(b), 57b,
6102(c), and 6105(b). Pl.'s 56.1 ¶ 3.
Defendants, Bay Area Business Council, Bay Area Customer Service,
American Leisure Card, Bay Memberships, Sr. Marketing Consultants, and
Special Technologies, are Florida corporations, with their principal place
of business at 801 West Bay Drive, Largo, Florida 33770. Collectively,
these Defendants are known as the "Corporate Defendants." Pl.'s 56.1 ¶
Defendant Porcelli is the owner and Chief Executive Officer of the
Corporate Defendants, and he actively participated in the Corporate
Defendants' operations. Pl.'s 56.1 ¶ 5. Defendant Harris is the
corporate Secretary and Treasurer of Defendants Bay Area Business Council
and Sr. Marketing Consultants, and she also held herself out as the corporate
Secretary and Treasurer of American Leisure Card. Harris actively
participated in the Corporate Defendants* operations. Pl.'s 56.1 ¶ 6.
Bay Area Business Corporation and American Leisure Card, through
telemarketers, made sales to consumers all over the United States,
including Illinois. Pl.'s 56.1 ¶ 7. Defendants are "sellers" or
"telemarketers" engaged in "telemarketing" as those terms are defined in
the Telemarketing Sales Rule, 16 C.F.R. § 310.2(r), (t), and (u).
Pl.'s 56.1 ¶ 8, American Leisure Card did business as "First American
Leisure Card" or "1st American Leisure Card." Pl.'s 56.1 ¶ 9.
Bay Area Business Council sold "MasterCards" to at least 90,000
consumers from about June or August 2001 through about July 2002. Pl.'s
56.1 ¶ 10. American Leisure Card sold "MasterCards" to at least
32,000 consumers between June 1, 2003 and August 15, 2002. Pl.'s 56.1
Bay Area Business Council and American Leisure Card entered into
contracts with Assail, Inc., a company located in St. George, Utah. Under
these contracts, Assail performed or hired others to perform
telemarketing for Bay Area Business Council and American Leisure Card.
Pl.'s 56.1 ¶ 12. Telemarketers representing Bay Area Business Council
and American Leisure Card told consumers or led consumers to believe they
would receive credit cards with substantial credit limits for an advance
fee. Pl.'s 56.1 ¶ 13.
On January 30, 2002, a Bay Area Business Council telemarketer called a
consumer, identified herself as "Jacky" from Bay Area Business Council in
Largo, Florida, and offered the consumer a MasterCard with a fixed
interest rate of 6.5% and a limit of $20,000.00 for an advance fee of $399.00. "Jacky" gave the consumer Bay Area Business
Council's customer service number, 1-800-339-1392. The conversation was
tape recorded. Pl.'s 56.1 ¶ 14.
Bay Area Business Council and American Leisure Card provided their
telemarketers with Training Manuals that included telemarketing scripts.
Pl.'s 56.1 ¶ 15. Bay Area Business Council's telemarketing scripts
open by saying, "Hello, is (Customer Name) home? My name is (Rep Name)
and I'm calling from Florida's Bay Area Business Council. Our records
indicate that within the past 12 months, you filed an application for a
credit card and you are now eligible to receive your MasterCard." Pl.'s
56.1 ¶ 16. American Leisure Card's telemarketing scripts open by
saying, "Hello, is (Customer Name) home? My name is (Rep Name) and I'm
calling from Florida's American Leisure. Our records indicate that within
the past 12 months, you filed an application for a credit card and you
are now eligible to receive your MasterCard." Pl.'s 56.1 ¶ 17.
Both scripts then ask a series of questions to "verify" personal
information about consumers, then state, "Mr./Mrs. (Customer Name) based
on your information you are guaranteed to receive a MasterCard that does
not require a security deposit with an initial pay as you go limit of
$2000." Pl.'s 56.1 ¶ 18. The scripts further state, "And nothing Mr.
_____ looks better on your Equifax credit report than a MasterCard. Pl.'s
56.1 ¶ 19 (emphasis in original). The scripts identify Bay Area Business
Council and American Leisure Card as "credit card reseller[s]." Pl.'s
56.1 ¶ 20.
Bay Area Business Council and American Leisure Card charged consumers a
"one-time processing" fee, typically $174.95 or more, plus up to $24.95
for "shipping and handling." Pl.'s 56.1 ¶ 21. Some Bay Area Business
Council customers were charged an advance fee of $399.00. Pl.'s 56.1 ¶ 22. The scripts state that the advance fee "covers the cost
of processing the MasterCard order" and "once your fee clears your card
is mailed guaranteed." Pl.'s 56.1 ¶ 23. Bay Area Business Council and
American Leisure Card also charged consumers an additional $10.00 or more
per month. Pl.'s 56.1 ¶ 24.
Bay Area Business Council and American Leisure Card received payments
from consumers by having funds debited from consumers' bank accounts.
Pl.'s 56.1 ¶ 25. From about July 2001 through November 2001, Bay Area
Business Council collected payments from consumers by using checks
created by Bay Area Business Council or its agents in Bay Area Business
Council's bank account, number 01113 599449, at Huntington National
Bank. Pl.'s 56.1 ¶ 26. From about September 2001 through August 12,
2002, Bay Area Business Council and, subsequently, American Leisure Card
and Bay Memberships collected payments from consumers by withdrawing
funds directly from consumers' bank accounts through automated clearing
house processing. The automated clearing house processor was Global
eTelecom, located in Destin, Florida. Pl.'s 56.1 ¶ 27.
After debiting consumers' bank accounts, Bay Area Business Council and
American Leisure Card sent out packages to consumers. Both companies'
packages were substantially the same except for company logos and
letterhead. Pl.'s 56.1 ¶ 28. These packages sent to consumers did not
contain a MasterCard credit card or any other functional card. Pl.'s 56.1
¶ 29. The only "card" in the packages sent to consumers was a
non-functional "facsimile card" with a MaseterCard logo and the name "Bay
Area Business Council" or "1st American Leisure Card" on the front and a
painted-on, non-magnetic black strip on the back. Pl.'s 56.1 ¶ 30. The packages Bay Area Business Council and American Leisure Card sent
to consumers also contained an application for a "stored value" card.
Pl.'s 56.1 ¶ 31. A "stored value" card is a type of debit card that
cannot be used until the consumer "loads" funds onto the card by
depositing those funds in a bank account. The consumer can only spend the
amount of funds that the consumer already had deposited in the account.
No credit was extended by use of the card. Pl.'s 56. ¶ 32.
In order to receive a stored value card, Bay Area Business Council and
American Leisure Card customers had to send additional funds, typically
$15.00, $25.00, or more, to Bay Area Business Council or Sr. Marketing
Consultants. Pl.'s 56.1 ¶ 33. Most or all of the Bay Area Business
Council customers who sent the additional funds to Bay Area Business
Council prior to December 2001 did not receive stored value cards, which
were supposed to be provided through Mark Filipo of Apex Bank Card
Services ("Apex"). Pl.'s 56.1 ¶ 34.
From about December 2001 onwards, the only stored value card available
to Bay Area Business Card and American Leisure Card customers was the
"ChexCard" issued by Merchant Bankcard Services Corporation, 724 Bank of
America Tower, 6300 Ridglea Place, Fort Worth, Texas 76116 and
Stonebridge Bank. Pl.'s 56.1 ¶ 35. To obtain a ChexCard, Bay Area
Business Council, and American Leisure Card customers had to fill out and
send to Sr. Marketing Consultants a "MasterCard Acceptance Form" that ...