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Federal Trade Commission v. Credit Bureau Center, LLC

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

June 26, 2018

CREDIT BUREAU CENTER, LLC, a limited liability company, formerly known as MYSCORE LLC, also doing business as EFREESCORE.COM, CREDITUPDATES.COM, and FREECREDITNATION.COM, MICHAEL BROWN, individually and as owner and manager of CREDIT BUREAU CENTER, LLC, DANNY PIERCE, individually, and ANDREW LLOYD, individually, Defendants.


          MATTHEW F. KENNELLY, District Judge

         The FTC alleges that Danny Pierce and Andrew Lloyd operated a deceptive marketing campaign on behalf of Michael Brown and Credit Bureau Center, LLC (CBC). The campaign directed consumers to CBC websites. The FTC alleges these websites misled consumers into enrolling in a monthly credit monitoring service that cost $29.94 per month. The FTC contends this conduct violated several consumer protection laws. Pierce and Lloyd agreed to entry of a preliminary injunction against them, and after an evidentiary hearing, the Court issued a preliminary injunction against CBC and Brown on February 21, 2017. See FTC v. Credit Bureau Center, LLC, 253 F.Supp.3d 1054 (N.D. Ill. 2017). The parties have now cross-moved for summary judgment.


         The Court briefly reviews the background to this case, relying on the parties' filings and LR 56.1 statements. In these statements, the defendants have failed to provide "a concise response" to the FTC's statements of fact using "specific references to the affidavits, parts of the record, and other supporting materials relied upon[.]" LR 56.1(b)(3)(B). See also Malec v. Sanford, 191 F.R.D. 581, 585 (N.D. Ill. 2000) ("The purpose of the 56.1 statement is to identify for the Court the evidence supporting a party's factual assertions in an organized manner: it is not intended as a forum for factual or legal argument.").

         The FTC offers facts describing negative feedback to CBC in the form of phone calls, e-mails, and credit card chargebacks. The FTC also offers facts that Brown received e-mails from particular parties involved in CBC's business that notified him of the Craigslist advertising scheme. Though the defendants' burden is to rebut these facts through contrary evidence that show the existence of a genuine factual dispute, the defendants have failed to do so. Instead they rely on an unsupported theory that it is the customers who were defrauding CBC by lying about the websites' deceptive character and other irrelevant or unfounded responses. This does not meet the requirements of Local Rule 56.1. Thus the Court deems as admitted Defs.' Resp. to Pl.'s Stmt. of Facts ¶¶ 57-61, 72-73, 80-82, 89, and 100.

         I. CBC and Brown

         Michael Brown is the owner, director, and sole employee of CBC. Independent contractors fulfilled many of CBC's marketing, sales, and customer service functions. CBC owned and operated several websites, including,, and For a monthly subscription fee, customers can access credit scores, credit reports, and a credit monitoring service. CBC does this through two lines of business: a "white label/co-branding" line, in which other businesses can offer CBC's services under their own name, and an affiliate marketing line, in which marketers direct customers to CBC sites. Affiliates who marketed CBC's services were compensated based on the volume of customers they referred. The practices of two affiliates are at issue in this suit: Danny Pierce and Andrew Lloyd.

         II. Craigslist marketing

         Pierce became an affiliate for CBC in January 2014. As an affiliate marketer, Pierce received an identification number by which Brown could track the volume of his referrals and determine compensation. Several months after Pierce began working as an affiliate for CBC, he asked Brown to create specific websites to which he could direct the customers he referred. CBC created these websites on December 1, 2015. The websites, which are described in detail later in this decision, advertised that consumers could obtain a "free credit score and report." In smaller type, the websites disclosed that signing up for these services would enroll the customer in a monthly credit monitoring service for $29.94 per month.

         Pierce, working as an affiliate marketer for CBC, contracted out some marketing functions to Andrew Lloyd. Lloyd began posting to Craigslist ads of attractive rental properties. Interested customers were invited to e-mail the "landlord" for additional information. The response e-mails were routed to Lloyd, who responded as though he were the landlord (which he wasn't). In the reply, Lloyd would ask the customer to obtain a credit report through the CBC websites and would promise to set up a tour of the rental property once the customer had a credit report in hand. If interested, the customer would then sign up for CBC's services and then follow up with the "landlord"- but would never receive a reply. (One of these e-mails has been attached to this opinion as Appendix I; screenshots of one of the CBC websites has been attached as Appendix II.) As Pierce later testified, he knew that Lloyd was posting "phony ads," as Lloyd was "not renting these places out," was "not a realtor" and "doesn't own the place. . . . He has no connection to this property." D.E. 206, Defs.' Ex. C at 73 (Pierce Dep.).

         The marketing effort proved extremely effective. Pierce was the most successful of CBC's affiliate marketers: his efforts resulted in 2, 741, 268 visitors to CBC's websites. (The next largest affiliate produced 369, 869 visitors.) Pierce's traffic generated $6.8 million in revenue for CBC.

         But the effort, unsurprisingly, also generated significant customer complaints. Customers complained that they were never connected with a landlord after obtaining a credit report and that they did not realize that they had been enrolled in CBC's credit monitoring service. A contractor who provided customer services for CBC logged numerous calls from dissatisfied customers. CBC also received customer e-mails complaining about the Craigslist marketing. In response, CBC's customer service often denied that CBC was involved in the marketing effort or that CBC paid affiliate marketers for referrals. Many customers also asked their credit card company to reverse the CBC charges. Brown also received direct e-mails from many individuals about the Craigslist marketing program.[1]

         III. Procedural posture

         Customers also directed their complaints to the FTC, which commenced an investigation into CBC. The FTC sued CBC, alleging that the Craigslist marketing program and the CBC websites violated several consumer protection laws. On January 11, 2017, Judge Sharon Johnson Coleman, acting as emergency judge, imposed a temporary restraining order on the defendants, restraining them from continuing the marketing program and freezing their assets. The FTC then moved for a preliminary injunction. As indicated earlier, Pierce and Lloyd agreed to the motion. CBC and Brown contested it, but the Court entered a preliminary injunction against them on February 21, 2017.


         Both parties have moved for summary judgment. Summary judgment is appropriate if "the movant shows that there is no genuine dispute as to any material issue of fact." Fed.R.Civ.P. 56(a). There is a genuine issue of material fact if "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); FTC v. World Media Brokers, 415 F.3d 758, 763 (7th Cir. 2005).

         I. Liability of CBC

         The FTC contends that CBC violated section 5 of the Federal Trade Commission Act (FTCA), 15 U.S.C. § 45(a)(1); the Restoring Online Shoppers' Confidence Act (ROSCA), 15 U.S.C. § 8403; and the Free Credit Reports Rule. 15 U.S.C. § 1681j(g)(1); 12 C.F.R. § 1022.138. The Court reviews each contention in turn.

         A. FTCA

         The FTCA 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. The FTC is not, however, required to prove intent to deceive." FTC v. Bay Area Bus. Council, Inc., 423 F.3d 627, 635 (7th Cir. 2005) (citations omitted). A misrepresentation is material if it makes it more likely that the consumer will choose the product being advertised. FTC v. Cyberspace.Com LLC, 453 F.3d 1196, 1201 (9th Cir. 2006); FTC v. Amy Travel Serv., Inc., 875 F.2d 564, 573 (7th Cir. 1989). The FTC contends that CBC violated the FTCA through (1) the Craigslist marketing scheme that Pierce and Lloyd carried out and (2) the credit report websites that CBC operated. (Because the websites are virtually identical, the Court refers to "website" in the singular for ease of reference.) The FTC has moved for summary judgment on its allegations under the FTCA.

         1. Craigslist marketing

         First, the FTC contends the Craigslist advertising campaign violated the FTCA. No. reasonable jury could find that the Craigslist scheme did not involve unfair or deceptive practices, as it was rife with material misrepresentations that were likely to deceive a reasonable consumer. Bay Area Bus. Council, Inc., 423 F.3d at 635. Pierce and Lloyd's marketing effort consisted of two parts, both of which were materially misrepresentative. First, they posted to Craigslist advertisements of attractive rental properties with an e-mail address for interested renters to contact. But the properties either did not exist or the marketers did not have authority to rent them. Second, when an interested renter asked about a property, Lloyd responded with a form e-mail that promised a tour of the property once the renter obtained a credit report. But customers found that, credit report in hand, there was no landlord that would provide a tour. There is, therefore, no genuine dispute that the Craigslist scheme was misrepresentative. Moreover, the misrepresentations were material, as the properties themselves and the requirement that a prospective renter first obtain a credit report before touring the property made it more likely that a reasonable consumer would choose to request a credit report from CBC. Cyberspace.Com LLC, 453 F.3d at 1201.

         The FTC has established that CBC is liable for the Craigslist campaign carried out on its behalf; no reasonable jury could find otherwise. "Principals are liable for the misrepresentations of their agents under the FTC Act." FTC v. Lifewatch Inc., 176 F.Supp.3d 757, 779 (N.D. Ill. 2016) (citing FTC v. World Travel Vacation Brokers, Inc., 861 F.2d 1020, 1029 (7th Cir. 1988)). "To bind the principal, the agent must have either actual authority, apparent authority, or the principal must ratify [the agent's] actions." Anetsberger v. Me. Life Ins. Co., 14 F.3d 1226, 1234 (7th Cir. 1994).

         Although the defendants initially contested whether Pierce and Lloyd acted as agents with actual authority, apparent authority, or CBC's ratification, they now concede that CBC ratified Pierce and Lloyd's conduct by accepting the benefits of their efforts while aware of their misconduct. See Defs.' Am. Reply in Supp. of Defs.' Mot. for Summ. J. at 1 n.1 ("Defendants will not address the FTC's argument on ratification as to CBC's corporate liability.").

         But even if the defendants had not conceded the point, the Court would find that CBC ratified Pierce and Lloyd's conduct. To establish that CBC ratified the affiliates' conduct, the FTC must demonstrate that CBC knew of the conduct but provided "long-term acquiescence" by accepting "the benefits of an allegedly unauthorized transaction." Sphere Drake Ins. Ltd. v. Am. Gen. Life Ins. Co., 376 F.3d 664, 677 (7th Cir. 2004) (internal quotation marks and citation omitted). No. reasonable jury could find that CBC did not know of the affiliates' fraudulent conduct. Consumers called to complain about the Craigslist advertisements and "landlord" e-mails that prompted them to enroll in CBC's service, sent e-mails to the same effect, and initiated chargebacks. CBC could easily trace these complaints to Pierce and Lloyd's practices. Not only could CBC track the traffic it received back to Pierce through an identification number, CBC could also determine that approximately 89 percent of its chargebacks were attributable to Pierce's traffic.

         Despite this, CBC continued to permit Pierce and Lloyd to market on its behalf. CBC could have terminated Pierce's affiliate arrangement whenever it liked, yet it never did so, despite mounting complaints. Thus CBC was aware of the Craigslist scheme but continued to accept the traffic (and revenues) generated by that conduct. As Pierce testified, he never stopped the Craigslist ads because he "assumed that it was fine, because Mike Brown wanted the traffic. He continuously took the traffic, and I just went based on that[.]" D.E. 206, Defs.' Ex. C at 74 (Pierce Dep.). The Court concludes there is no issue for trial on the question of agency. The Craigslist campaign was materially misrepresentative, and CBC ratified Pierce and Lloyd's conduct.

         2. ...

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