United States District Court, N.D. Illinois, Eastern Division
MEMORANDUM OPINION AND ORDER
MATTHEW F. KENNELLY United States District Judge.
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.
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.
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
formerly known as MyScore LLC, also doing business as
eFreeScore.com, Creditupdates.com, and FreeCreditNation.com,
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
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.
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
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.
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.
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).
Likelihood of success
Section 5(a) of the FTC Act
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).
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 ...