By Jody Coultas, J.D.
In an FTC enforcement action, the federal district court in Orlando did not abuse its discretion in holding payment Universal Processing Services of Wisconsin, LLC jointly and severally liable with the members of a telemarketing scheme. Universal violated the Telemarketing Sales Rule (TSR) substantial assistance rule by providing two merchant accounts to telemarketing scheme despite substantial evidence that the scheme was defrauding customers. While Universal was not part of a common enterprise with the other defendants, it could be held jointly and severally liable by virtue of its violation of the TSR alone (FTC v. WV Universal Management, LLC, December 13, 2017, Black, S.).
According to the complaint, three individuals and several corporate entities they held, doing business as Treasure Your Success (TYS), operated a credit card interest rate reduction scheme through prerecorded voice messages. The messages would claim that TYS could substantially reduce consumers’ credit card interest rates in exchange for an upfront fee. Although TYS representatives would claim that a fee would not be charged until a consumer had received the promised rate reductions, or until the consumer signed a contract, the fees would generally be charged to consumers’ credit cards during the telephone call or immediately afterward. The group obtained more than $2.5 million from consumers through the TYS scheme.
TYS used a payment processor to charge customers’ credit cards and deposit the funds in its bank account. Universal, a payment processor, approved TYS as one of its merchant customers. An independent sales agent who had worked with Universal was also involved in the TYS scheme.
On November 18, 2014, the court granted the FTC’s motion for summary judgment, finding Universal liable for assisting and facilitating telemarketing violations, by providing the interface with the banks to handle credit card payments while knowing or avoiding knowing of the underlying TSR violations. The final monetary judgment held Universal jointly and severally liable for $1,734,972 as equitable monetary relief.
The Eleventh Circuit vacated the district court’s award of equitable monetary relief against Universal, based on the district court’s failure to explain why Universal’s conduct warranted joint and several liability, since its common enterprise finding did not extend to Universal.
On remand, the district court reasoned that a violation of the TSR constitutes an "unfair or deceptive act or practice" in violation of the FTC Act. As such, the district court was authorized to order restitution and disgorgement under the Act. Furthermore, the court clarified that Universal’s liability was premised on substantial assistance rather than on a common enterprise theory. Universal again appealed.
A violation of the TSR’s substantial assistance rule can support joint and several liability to the extent of the unjust gains, according to the court. It was undisputed that Universal violated the TSR’s substantial assistance rule by providing two merchant accounts to TYS despite substantial evidence that TYS was engaged in a fraudulent telemarketing scheme. While Universal was not part of a common enterprise with the other TYS defendants, but could be held jointly and severally liable by virtue of its violation of the TSR alone. There was nothing to support Universal’s argument that joint and several liability cannot attach without a finding of a common enterprise. By violating the TSR, Universal violated the FTC Act and was subject to its penalties.
The district court did not err in its calculation of the amount of restitution, according to the court. Universal argued that it should not have been held jointly and severally liable because liability could be apportioned. However, apportionment is only appropriate where "there are distinct harms" or where "there is a reasonable basis for determining the contribution of each cause to a single harm." Neither the distinct portion of the harm Universal caused nor Universal’s relative contribution to the undivided harm can be determined. The harm to each consumer defrauded by the TYS scheme was indivisible.
Also, the court rejected Universal’s argument that should only be forced to disgorge the amount it gained from the scheme and that it most of the gains on to TYS. The district court found that the total amount of unjust gains to all the defendants equaled $1,734,972 after chargebacks and refunds. Differentiating between money Universal ultimately kept and funds it passed on to the TYS schemers was merely another way of challenging joint and several liability.
Universal also argued that the amounts it passed on to the TYS defendants did not unjustly enrich the defendants. However, the sums Universal paid over to TYS constituted payments to its codefendants. Therefore, those amounts are part and parcel of the unjust enrichment of the entire group. To subtract them was again merely to contest joint and several liability.
The case is No. 16-17727.
Attorneys: Theodore Paul Metzler, Jr. for the FTC. Lewis Steven Wiener (Eversheds Sutherland [US] LLP) for Universal Processing Services of Wisconsin, LLC.
Companies: Universal Processing Services of Wisconsin, LLC
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