Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Federal Trade Commission v. Millennium Telecard

July 11, 2011

FEDERAL TRADE COMMISSION, PLAINTIFF,
v.
MILLENNIUM TELECARD, INC., ET AL., DEFENDANTS.



The opinion of the court was delivered by: Linares, District Judge.

NOT FOR PUBLICATION

OPINION

This matter comes before the Court by way of Plaintiff's motion for a preliminary injunction pursuant to Federal Rule of Civil Procedure 65, brought by way of Order to Show Cause. The Plaintiff in this matter is the Federal Trade Commission ("FTC"). Defendants, Millennium Telecard, Inc., Millenium Tele Card, LLC, Coleccion Latina, Inc., Telecard Center USA, Inc., and Fadi Salim (referred to collectively as "Defendants"), are engaged in the business of prepaid calling cards. The FTC brings this enforcement action under Section 13(b) of the Federal Trade Commission Act, 15 U.S.C. § 53(b), seeking to obtain, inter alia, temporary, preliminary and permanent injunctive relief, restitution, the refund of monies paid, disgorgement of ill-gotten monies, and other equitable relief based on allegations that Defendants have engaged in deceptive marketing of prepaid calling cards in violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a). The Court has considered the submissions made in support of and in opposition to the instant motion. A hearing in connection with Plaintiff's motion was held before the undersigned on May 16, 2011. Based on the reasons that follow, Plaintiff's application is granted in part.

FACTUAL AND PROCEDURAL BACKGROUND

A. Plaintiff's Complaint

The FTC, an independent agency of the United States Government created by statute, initiated this action on May 2, 2011 by filing a Complaint for Permanent Injunction and other equitable relief and an ex parte motion for a Temporary Restraining Order against the various Defendants to this matter. Defendants have been engaged in the business of prepaid calling cards since at least 2002 (Compl., ¶ 20). Defendant Salim is the founder, president and/or CEO of the various corporate Defendants.

In short, Plaintiff's Complaint alleges that Defendants engaged in deceptive marketing of prepaid calling cards in violation of the Federal Trade Commission Act, 15 U.S.C. § 41, et seq. In particular, the FTC maintains that Defendants "have deceived and continue to deceive consumers, many of whom are recent immigrants, by: (1) misrepresenting the number of calling minutes consumers will obtain using Defendants' prepaid calling cards; and (2) failing to disclose or disclose adequately fees that have the effect of reducing the number of calling minutes available to consumers using Defendants' prepaid calling cards." (Compl., ¶ 1). The FTC further alleges that "[i]n numerous instances since at least 2007, the calling minutes actually delivered to consumers by Defendants' prepaid calling cards are substantially fewer than what is promised by Defendants in marketing, advertising and promoting their cards." (Compl., ¶ 39). In support of this position, the FTC points to the fruits of its own investigation wherein it determined that "[i]n 141 tests of Defendants' cards conducted between August 24, 2010 and March 30, 2011, Defendants' cards delivered an average of only 45% of the advertised minutes. Of the 141 tested cards, 139 -- more than 98% -- failed to deliver the number of minutes advertised on the point-of-sale posters." (Compl., ¶ 40).

Count One of Plaintiff's Complaint alleges deception by way of misrepresentations regarding the number of calling minutes, in violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a). Count Two of Plaintiff's Complaint alleges deception by virtue of failure to disclose fees, also in violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a). This Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1331.

B. Plaintiff's Ex Parte Motion for a Temporary Restraining Order

In conjunction with its Complaint, the FTC filed, on May 2, 2011, an ex parte motion for a temporary restraining order pending this Court's decision on its motion for a preliminary injunction. Plaintiff's application for a temporary restraining order was granted on the same day. In its May 2, 2011 Order, this Court found, preliminarily, that "there is good cause to believe that Defendants . . . have engaged in and are likely to engage in acts and practices that violate Section 5(a) of the FTC Act, 15 U.S.C. § 45(a), by deceptively marketing prepaid telephone calling cards, and the FTC is therefore likely to prevail on the merits of this action." (May 2, 2011 Order, ¶ 2). This Court's May 2, 2011 Temporary Restraining Order directed, inter alia, certain conduct prohibitions, an asset freeze, disclosure by Defendants of various financial records and statements, preservation of records, prohibition of release of customer information, and the appointment of a temporary Receiver. (Docket Entry No. 5).

Such Order was entered on an ex parte basis based upon the sworn certification submitted by Kathleen Daffan, counsel for the FTC, wherein she represented that there is ample evidence demonstrating that "it is reasonably likely that Defendants will destroy documents and dissipate or hide assets" absent the ex parte relief requested. (Docket Entry No. 3-2). Such evidence also included a sworn certification by an investigator for Bank of America stating that Mr. Salim bounced three (3) checks (drawn from his personal E*Trade account and deposited into a Millennium corporate account) in or around November 2009. See Starr Decl., ¶ 9, Pl. Ex. 154. No bond was posted by the FTC in accordance with Federal Rule of Civil Procedure 65(c).

LEGAL STANDARD

A preliminary injunction is a "drastic and extraordinary remedy that is not to be routinely granted." Intel Corp. v. ULSI Sys. Tech., Inc., 995 F.2d 1566, 1568 (Fed. Cir. 1993). Traditionally, in order to obtain preliminary injunctive relief, the moving party must demonstrate: (1) the likelihood of eventual success on the merits; (2) the existence of immediate irreparable harm if the relief requested is not granted; (3) that a balance of the hardships weighs in its favor; and (4) that consideration of the public interest weighs in favor of granting the relief requested. Ortho Pharm. Corp. v. Amgen, Inc., 882 F.2d 806, 812-13 (3d Cir. 1989).

However, in the specific context of actions brought by the FTC, several courts of appeals have held that the FTC need not satisfy the traditional equity standard that courts typically impose on private litigants to justify imposition of a preliminary injunction, but must instead demonstrate the following: (1) the likelihood that it will ultimately succeed on the merits, and (2) that a balance of the equities weighs in favor of granting the relief requested. See F.T.C. v. Univ. Health, Inc., 938 F.2d 1206, 1217-18 (11th Cir. 1991); FTC v. Warner Comm'cs Inc., 742 F.2d 1156, 1160 (9th Cir. 1984); FTC v. Food Town Stores, Inc., 539 F.2d 1339, 1343-44 (4th Cir. 1976); see generally FTC v. Check Investors, Inc., No. 03-2115, 2003 U.S. Dist. LEXIS 26941, at *13 (D.N.J. July 30, 2003) (noting that "the traditional factors are not applicable when, as in this case, a federal agency is seeking injunctive relief that is authorized by statute."). Section 13(b) of the FTC Act itself provides that "[u]pon a proper showing that, weighing the equities and considering the [FTC]'s likelihood of ultimate success, such action would be in the public interest . . . a preliminary injunction may be granted . . . ." 15 U.S.C. §53(b). In light of the foregoing, and absent a contrary directive from the Court of Appeals for the Third Circuit, the Court will apply this standard to Plaintiff's application.

DISCUSSION

A. Likelihood of Success on the Merits

Plaintiff's Complaint asserts two claims of deception under Section 5(a) of the FTC Act, 15 U.S.C. § 45(a). Section 5(a)(1) declares unlawful "[u]nfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce." 15 U.S.C. § 45. "The primary purpose of § 5 is to lessen the harsh effects of caveat emptor." FTC v. Freecom Commc'ns, Inc., 401 F.3d 1192, 1202 (10th Cir. 2005). To establish liability under section 5 of the FTC Act, the FTC must establish: "(1) there was a representation; (2) the representation was likely to mislead customers acting reasonably under the circumstances, and (3) the representation was material." FTC v. Tashman, 318 F.3d 1273, 1277 (11th Cir. 2003). A material omission can also violate section 5 of the FTC Act. See, e.g., Sterling Drug, Inc. v. FTC, 741 F.2d 1146, 1154 (9th Cir. 1984) ("The failure to disclose material information may cause an advertisement to be deceptive, even if it does not state false facts."). In order to establish liability under Section 5(a), the FTC need not prove that the misrepresentation or omissions were made with the intent to deceive or in bad faith. See Freecom Commc'ns,, 401 F.3d at 1202. Nor does the FTC need to show actual reliance by consumers. See FTC v. Verity Intern., Ltd., 443 F.3d 48, 63 (2d Cir. 2006) ("[I]t is enough that the representations or practices were likely to mislead consumers acting reasonably."). "Instead, the 'cardinal factor' in determining whether an act or practice is deceptive under § 5 is the likely effect the promoter's handiwork will have on the mind of the ordinary consumer." Freecom Commc'ns,, 401 F.3d at 1202.

The FTC claims that Defendants have committed two forms of deception: (1) falsely representing the number of minutes consumers will receive when using Millennium calling cards, and (2) failing to disclose (or adequately disclose) the fees associated with Millennium cards. In addition, the FTC claims that Defendants, together, constitute a "common enterprise" for purposes of rendering them jointly and severally liable for the foregoing violations of the FTC Act.

The crux of Defendants' opposition to the FTC's application is that the FTC is unlikely to succeed on the merits because it has failed to establish that the conduct at issue -- under both claims -- constitutes "deceptive marketing" within the meaning of the Act. Defendants also offer two more generalized arguments in opposition to Plaintiff's motion. For instance, Defendants maintain that the FTC is unlikely to succeed on the merits because: (1) the Federal Communications Commission ("FCC"), not the FTC, has exclusive jurisdiction over the issues raised in Plaintiff's Complaint, and (2) the voluntary payment doctrine renders the government incapable of demonstrating that Millennium's customers were deceived. For purposes of ease and efficiency, the Court will first address the more global arguments raised by Defendants concerning the FTC's jurisdiction to bring this action (or lack thereof) as well as the implications, if any, of the voluntary payment doctrine to the FTC's claims.

1. FTC's Jurisdiction

15 U.S.C. § 45(a)(2) provides that "the Commission is hereby empowered and directed to prevent persons, partnerships, or corporations, except . . . common carriers subject to the Acts to regulate commerce . . . from using unfair methods of competition in or affecting commerce and unfair or deceptive acts or practices in or affecting commerce." In this regard, Defendants maintain, generally, that "[a]s distributors of the cards, defendants have absolutely no ability to set the rate structure or fee structure for the calls, which is within the exclusive province of the service providers [or common carriers]. Regulation of the service providers, in turn, is within the exclusive jurisdiction of the Federal Communications Commission ("FCC"). (Def. Br. at 1). See 15 U.S.C. § 45(a)(2). It follows -- according to the Defendants -- that any action as to the amount of the applicable fees or the rates imposed will necessarily involve the service carriers (or common carriers) over which the FTC does not have jurisdiction. See id. Thus, the crux of Defendants' argument is not that the FTC lacks jurisdiction to bring this action; rather, Defendants argue that the FTC lacks jurisdiction over a hypothetical action that Defendants believe would more appropriately serve the ultimate goal of protecting consumers from the rate/fee structure at issue in this matter -- that is, an action against the service providers (or common carriers) who actually set the fee/rate structure. Although Defendants' point is well taken, it has no bearing on whether the FTC has jurisdiction to bring the instant enforcement action against a calling card distributor. Nothing stated or cited to by Defendants suggests that it does not.*fn1 Defendants' argument in this regard is therefore rejected.

2. Voluntary Payment Doctrine

Defendants maintain that the FTC is unlikely to succeed on the merits of its claims of deception by virtue of the voluntary payment doctrine. The "voluntary payment doctrine is a corollary to the mistake of law doctrine and, in its general formulation, holds that a person who voluntarily pays another with full knowledge of the facts will not be entitled to ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.