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Federal Trade Commission v. Credit Bureau Center, LLC

United States District Court, N.D. Illinois, Eastern Division

February 21, 2017



          MATTHEW F. KENNELLY United States District Judge.

         On January 10, 2017, the Federal Trade Commission (FTC) filed a complaint against Credit Bureau Center, LLC, Michael Brown, Danny Pierce, and Andrew Lloyd seeking a permanent injunction and equitable relief. The FTC alleges that defendants violated section 5(a) of the FTC Act, 15 U.S.C. § 45(a); section 612(g)(1) of the Fair Credit Reporting Act (FCRA), 15 U.S.C. § 1681j(g)(1), and the Free Annual File Disclosures Rule (Free Reports Rule), 12 C.F.R. § 1022.138; and the Restore Online Shoppers' Confidence Act (ROSCA), 15 U.S.C. § 8403.

         The FTC moved ex parte for a temporary restraining order including an asset freeze, appointment of a receiver, and other relief. On January 11, 2017, Judge Sharon Johnson Coleman, acting as emergency judge in the undersigned judge's absence, granted the requested TRO.

         The FTC also moved for a preliminary injunction against all of the defendants. Lloyd and Pierce agreed to entry of a preliminary injunction, and CBC and Brown opposed the FTC's motion. The Court held an evidentiary hearing on the preliminary injunction motion on February 13-14, 2017 and extended the TRO through 5:00 p.m. on February 21, 2017 to permit consideration of the evidence and arguments presented at the preliminary injunction hearing. For the following reasons, the Court grants the FTC's motion for preliminary injunction.


         CBC, formerly known as MyScore LLC, also doing business as,, and, is a single-member LLC that is owned and run by Brown. CBC has only one employee, Brown himself. It uses independent contractors for sales, marketing, customer service, and accounting.

         CBC offers online credit scores and credit monitoring services to consumers. Brown says that CBC engaged in two primary lines of business: (1) the offering of credit monitoring solutions that take the form of "white-labeled" or "co-branded" credit reports, scores and monitoring, and (2) the offering of credit monitoring solutions through an affiliate marketing program to consumers. For white-label websites, CBC offers credit reporting services under the name of its affiliate on the affiliate's website. For co-branded credit report offerings, CBC will create a custom landing page for the affiliate or partner where the page will contain wording to the effect that the partner is offering the credit monitoring services but that the services are powered by CBC. CBC's other line of business is direct sales of credit monitoring services driven by affiliate marketers. Pl.'s Mot. for Prelim. Inj., Ex. 10 ¶ 6. In order to do this, CBC hires affiliates or affiliate networks to attract consumers and drive traffic to its websites. Id. In exchange, CBC's affiliates are paid commission on the sales they generate for CBC. Id.; Pl.'s Reply, Ex. 12, Att. A, pp. 28-30. This wrongdoing alleged in this case concerns CBC's affiliate marketing business.

         From the company's inception in the second half of 2011 through January 19, 2017, CBC generated more than $10.1 million in revenue, net of chargebacks, returns, and other adjustments. CBC's total net income from its inception to January 19, 2017 was approximately $1.67 million, of which $659, 159 was distributed to Brown. The lion's share of CBC's revenue was obtained in 2014, 2015, and 2016 (its total revenue for 2013, its best year up to that point, was under $600, 000). In early 2014, CBC hired Revable Network LLC, a company owned and run by Pierce, to perform affiliate marketing to drive consumer traffic to CBC's websites. Pierce, in turn engaged Lloyd, who established and ran a fraudulent advertising campaign to generate business for CBC. Lloyd posted Craigslist ads purporting to offer attractive rental properties. When a consumer responded to one of these ads, Lloyd replied by impersonating the owner or manager of the purported rental property-which did not actually exist-and inviting the consumer to take a tour of the property. Visiting the property, however, was conditioned on the consumer first obtaining his or her credit report. The phony landlord letter included a link that Lloyd identified as a credit report service. When the consumer clicked on the link, she would arrive at a landing page that showed an offer from CBC for a free credit report and credit score. When the consumer signed up, she received a free credit score but was also enrolled in CBC's credit monitoring service, which carried an automatic monthly charge of twenty to thirty dollars.

         CBC, Brown, Pierce, and Lloyd all received significant monetary benefit from Lloyd's fraudulent Craigslist advertisements. Generally, an affiliate earns a "cost per click" commission by inducing a consumer to click on a link that leads the consumer to the merchant's website. Pl.'s Mot. for Prelim. Inj., Ex. 10 ¶ 6. From December 2014 to January 2017, Pierce and Lloyd generated over 146, 000 sales for CBC, from which CBC made at least $6.8 million in revenue. CBC, in turn, paid Pierce approximately $2.3 million. Of that $2.3 million, Pierce kept $441, 148 and paid Lloyd $1, 919, 581.

         Consumer complaints filed with the FTC and the Better Business Bureau prompted the FTC to investigate the fraudulent advertisements. The FTC then filed this lawsuit, alleging that CBC, Brown, Pierce, and Lloyd knowingly participated in the Craigslist campaign and other violations of federal law. Pierce and Lloyd do not dispute the FTC's findings. CBC and Brown concede that Pierce and Lloyd defrauded customers but deny any involvement or knowledge of the fraud.


         Injunctive relief is available under the FTC Act "[w]henever the Commission has reason to believe . . . that any person, partnership, or corporation is violating . . . any provision of law enforced by the Federal Trade Commission." 15 U.S.C. § 53(b). In determining whether to grant a preliminary injunction, the Court must 1) determine that there is a likelihood that the FTC will succeed on the merits and 2) balance the private and public equities. FTC v. World Travel Vacation Brokers, Inc., 861 F.2d 1020, 1029 (7th Cir. 1988). "In framing the probability of success necessary for a grant of injunctive relief . . . the plaintiff's chances of prevailing need only be better than negligible." D.U. v. Rhoades, 825 F.3d 331, 338 (7th Cir. 2016). In balancing private and public equities, "public equities must receive far greater weight." World Travel Vacation Brokers, Inc., 861 F.2d at 1029. And unlike private litigants, "it is not necessary for the FTC to demonstrate irreparable injury." Id. "The greater the plaintiff's likelihood of success on the merits . . ., the less harm from denial of the preliminary injunction the plaintiff need show in relation to the harm that the defendant will suffer if the preliminary injunction is granted." FTC v. Elders Grain, Inc., 868 F.2d 901, 903 (7th Cir. 1989).

         A. Likelihood of success

         1. Section 5(a) of the FTC Act

         Section 5 of the FTC Act prohibits "unfair or deceptive acts or practices in or affecting commerce." 15 U.S.C. § 45(a)(1). The "FTC may establish corporate liability under section 5 with evidence that a corporation made material representations likely to mislead a reasonable consumer." FTC v. Bay Area Bus. Council, Inc., 423 F.3d 627, 635 (7th Cir. 2005); FTC v. QT, Inc., 512 F.3d 858, 863 (7th Cir. 2008) (citing Kraft, Inc. v. FTC, 970 F.2d 311, 314 (7th Cir. 1992)). The FTC need not prove intent to deceive in order to establish liability, because the primary purpose of § 5 is to protect public consumers "rather than to punish the wrongdoer." FTC v. Freecom Commc'ns, Inc., 401 F.3d 1192, 1202 (10th Cir. 2005). Indeed, "an advertiser's good faith does not immunize it from responsibility for its misrepresentations." World Travel Vacation Brokers, 861 F.2d at 1029 (internal quotation marks omitted). Accordingly, to make a finding that a corporation's practice is deceptive, the Court looks to the "practice's likely effect on [the] mind of ordinary consumer." Bay Area Bus. Council, 423 F.3d 627 at 635 (citing Freecom Commc'ns, 401 F.3d at 1202). "The existence of some satisfied customers does not constitute a defense under the FTCA." FTC v. Amy Travel Serv., Inc., 875 F.2d 564, 572 (7th Cir. 1989).

         It is undisputed that Pierce and Lloyd's method of generating sales for CBC constituted a fraud on consumers and violated section 5 of the FTC Act. Lloyd (with Pierce's knowledge) created advertisements for fake rental listings on Craigslist to direct consumers to CBC's websites to obtain a "free credit report, " knowing that signing up for the report would result in a monthly charge for credit monitoring. What is disputed is whether and ...

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