Federal Trade Commission v. Financial Freedom Processing, Inc.

538 F. App'x 488

Opinions

PATRICK E. HIGGINBOTHAM, Circuit Judge:

Footnotes

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In 2010, the FTC sued three debt-negotiation companies—Financial Freedom of America, Inc., Debt Consultants of America, Inc., and Debt Professionals of America, Inc. (“the Companies”)—as well as five of the individuals who owned or controlled them. According to the FTC, the defendants violated § 5 of the FTC Act by deceptively claiming, in radio ads, on their websites, and in sales calls, that the Companies could eliminate 30 to 60% of consumers’ credit card debt in as little as 18 to 36 months.¹ At trial, the defendants argued that the claims were perfectly accurate as interpreted by a reasonable consumer, who would have understood that (1) the advertised debt reduction excluded the Companies’ fees and (2) the advertised debt reduction and timing excluded clients who dropped out of the programs. To support their interpretation of the claims, the defendants relied heavily on the Companies’ disclosures in sales calls and enrollment agreements—disclosures made at or shortly before the point of purchase. The district court agreed that § 5 deception should be evaluated on the basis of all information the Companies disclosed to consumers up to the point of purchase. Based on this conclusion, it adopted the defendants’ interpretation of the claims and entered judgment in their favor.

The district court’s § 5 analysis is dubious. The Companies deployed a marketing campaign that utilized a variety of media and involved a series of discrete communications with consumers. Circuits to apply § 5 in such circumstances have concluded that “the law is violated if the first contact is secured by deception, even though the true facts are made known to the buyer before he enters into the contract of purchase.”² That is, “each advertisement must stand on its own merits; even if other advertisements contain accurate, non-deceptive claims, a violation may occur with respect to the deceptive ads.”³ Hence, there is an argument with considerable purchase that the district court erred by considering not only the content of individual radio ads and websites (the Companies’ “first contact” with consumers), but also critical disclosures made only when consumers arrived at the bargaining table.⁴

The FTC, however, did not clearly challenge the district court’s § 5 analysis on this ground in its briefs or during oral argument—despite pointed questioning. Rather, it chose to challenge the district court’s factual determination that reasonable consumers at the point of purchase would have interpreted the Companies’ debt-reduction and timing claims in a non-deceptive manner. The FTC’s attempt to characterize this assessment of consumer perceptions as a legal conclusion is unavailing; we review such findings only for clear error.⁵ And while the Companies’ radio ads and websites may be misleading ⁶—indeed, it is difficult to conclude that the websites are not deceptive⁷—we are satisfied that substantial evidence supports the district court’s finding that reasonable consumers were no longer deceived at the point of purchase. The judgment of the district court is AFFIRMED.

Pursuant to 5th Cir. R. 47.5, the court has determined that this opinion should not be published and is not precedent except under the limited circumstances set forth in 5th Cir R. 47.5.4.

1

. As relevant here, § 5 prohibits "unfair or deceptive acts or practices in or affecting commerce.” 15 U.S.C. § 45(a)(1). The FTC brought suit under § 13(b). See 15 U.S.C. § 53(b).

2

. Exposition Press, Inc. v. FTC, 295 F.2d 869, 873 (2d Cir.1961) (quoting Carter Prods., Inc. v. FTC, 186 F.2d 821, 824 (7th Cir.1951)); see also Resort Car Rental Sys., Inc. v. FTC, 518 F.2d 962, 964 (9th Cir.1975) ("[Section 5] is violated if it induces the first contact through deception, even if the buyer later becomes fully informed before entering the contract.”).

3

. Removatron Intern. Corp. v. FTC, 884 F.2d 1489, 1496-97 (1st Cir.1989); see also FTC v. Medical Billers Network, Inc., 543 F.Supp.2d 283, 304 (S.D.N.Y.2008) ("[E]ach representation must stand on its own merit, even if other representations contain accurate, non-deceptive information.”); FTC v. Gill, 71 F.Supp.2d 1030, 1044 (C.D.Cal.1999) (same).

4

. Had the FTC persuaded us that the district court applied an incorrect legal standard, we would have been obliged to review the evidence de novo. See, e.g., Fuji Photo Film Co., Inc. v. Shinohara Shoji Kabushiki Kaisha, 754 F.2d 591 (5th Cir. 1985).

5

. See, e.g., Beneficial Corp. v. FTC, 542 F.2d 611, 617 (3d Cir.1976) ("Whether particular advertising has a tendency to deceive or mislead is obviously an impressionistic determination more closely akin to a finding of fact than to a conclusion of law.”); Giant Food, Inc. v. FTC 322 F.2d 977, 982 n. 12 (D.C.Cir.1963) ("The meaning of advertisements or other representations to the public, and their tendency or capacity to mislead or deceive, are questions of fact....”).

6

. For example, even accepting that a reasonable consumer exposed to the Companies’ radio ads would have understood that the advertised debt reduction and timing excluded dropouts, the ads may have nonetheless been deceptive because they failed to disclose the likelihood of dropping out (and affirmatively fostered the misimpression that participation would be painless). See FTC v. Stefanchik, 559 F.3d 924, 928 (9th Cir.2009) (noting that a material omission may violate § 5). Though the district court recognized this possibility during closing arguments, its concerns were apparently assuaged by the fact that die Companies disclosed the many of the risks of participation in their sales calls and enrollment agreements.

7

. Whereas the radio ads merely failed to disclose the Companies’ high dropout rate, see supra note 6, two of the Companies’ websites affirmatively misrepresented it, claiming that "the majority of our clients complete the programs in 18-36 months.” (emphasis added.) This language clearly and unambiguously conveys that a majority of consumers who enroll in the programs (i.e., "clients”) successfully complete the programs within 18 to 36 months; however, the evidence establishes that at most 24% of enrolled clients competed the programs.