Federal Trade Commission v. Grant Connect, LLC

763 F.3d 1094, 2014 WL 3973402, 2014 U.S. App. LEXIS 15760
CourtCourt of Appeals for the Ninth Circuit
DecidedAugust 15, 2014
Docket11-18023
StatusPublished
Cited by30 cases

This text of 763 F.3d 1094 (Federal Trade Commission v. Grant Connect, LLC) is published on Counsel Stack Legal Research, covering Court of Appeals for the Ninth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Federal Trade Commission v. Grant Connect, LLC, 763 F.3d 1094, 2014 WL 3973402, 2014 U.S. App. LEXIS 15760 (9th Cir. 2014).

Opinion

OPINION

M. SMITH, Circuit Judge:

Kyle Kimoto (Kimoto) appeals from the district court’s grant of summary judgment to the Federal Trade Commission (FTC), and its order permanently enjoining Kimoto from engaging in a variety of marketing tactics, and ordering him to pay restitution. The district court found that Vertek — Kimoto’s wholly controlled company — had committed multiple violations of the FTC Act, 15 U.S.C. §§ 41-58, through its misleading advertising, and further found that Kimoto was both personally involved im the practices and knew that the advertising was misleading or was recklessly indifferent as to that possibility. On this basis the district court permanently enjoined Kimoto personally from engaging in a variety of advertising practices and ordered him to pay restitution.

On appeal, Kimoto argues that the FTC presented insufficient evidence of his involvement in Vertek’s violations of the FTC Act to personally enjoin him or require him to pay restitution. Specifically, Kimoto argues that he cannot be held liable for Vertek’s schemes related to the marketing of what are styled the Line of Credit scheme, the Grant Connect scheme, the Work From Home scheme, and the Acai Total Burn scheme, because the cam: paigns were not launched until after Kimo-to was imprisoned as a result of prior violations of the FTC Act committed through a different company. Kimoto further argues that he cannot be individually liable for Vertek’s' misdeeds under the Electronic Fund Transfer Act (EFTA), codified in part at 15 U.S.C. § 1693. Finally, Kimoto claims that the district court’s injunction — barring him from engaging in what are described as negative-option marketing, continuity programs, preauthorized electronic fund transfers, the use of testimonials, and marketing or selling products *1098 related to grants, credit, business opportunities, diet supplements, or nutraceuti-cals — is overly broad.

We affirm the district court’s grant of summary judgment to the FTC in part, and vacate the district court’s grant of summary judgment to the FTC solely with respect to the Acai Total Burn scheme.

FACTUAL AND PROCEDURAL BACKGROUND

Kimoto’s fraudulent business practices have drawn FTC scrutiny for over a decade, and have resulted in three distinct enforcement actions against him. Kimo-to’s various schemes have employed several unifying features: in each, Kimoto lured consumers with a deceptively advertised headline product, and then enrolled them in “upsells,” or negative-option “free trials” that required consumers to undergo a burdensome cancellation process in order to avoid inadequately disclosed recurring monthly fees.

Two such schemes provide the relevant background for this appeal. In 2003, the FTC brought an enforcement action against Kimoto and one of his companies, Assail, Inc. FTC v. Assail, Inc., 410 F.3d 256, 259 n. 1 (5th Cir.2005). The FTC alleged that Kimoto enticed customers with an offer to purchase a preapproved MasterCard through Assail, but that when they tried to do so Assail provided them either with applications for cash-secured debit cards, or with unusable plastic cards bearing an unauthorized reproduction of the MasterCard logo. Id. When customers accepted the offer for the ostensible credit cards, Assail also enrolled them in additional negative-option “free trials” that ceased to be free after an introductory period. Id. Assail then charged consumers recurring fees both for the “credit cards” and for the “free trials,” and erected a variety of barriers to effective cancellation. Id. On appeal, the Fifth Circuit held that Kimoto, through Assail, “committed multiple, egregious violations of the [FTC Act].” Id. at 264. The district court in Assail imposed a permanent injunction barring Kimoto from engaging in telemarketing and also ordered Kimoto to pay $106 million in restitution. Subsequently, the FTC initiated criminal charges against Kimoto for his role in the Assail scheme. United States v. Kimoto, 588 F.3d 464, 470 (7th Cir.2009).

Apparently undeterred by the injunction, Kimoto moved to Las Vegas and formed a corporate entity to engage in Internet marketing schemes, which eventually became the Vertek Group, LLC. To avoid regulatory scrutiny, Kimoto entrusted his then-wife, Juliette Kimoto, with legal ownership of the entity. According to Kimoto’s ex-wife, this structure had the added — and intended — benefit of permitting her to profit from the company in the event that Kimoto was incarcerated.

Although Mrs. Kimoto was the titular owner of Vertek, Kimoto organized and ran the company. Kimoto hired many of the employees who had been involved in the Assail scheme, including Michael Hen-riksen and Tasha Jn Paul. Kimoto also arranged for Michael Henriksen’s brother’s business, Global Gold, to be the first “product provider” for the scheme and recruited two more Assail veterans, Randy O’Connell and James Gray — through their business consulting and staffing company O’Connell Gray, LLP — to help “with the logistics of accepting transactions on the [Internet].... ” With his team in place, Kimoto directed and participated in the development of several deceptive marketing campaigns.

A. The Line of Credit Scheme

One of Vertek’s first schemes involved the marketing of a “$7,500 Unsecured Credit Line” with promises such as “No Credit Check! No Employment Verification! No Security Deposit! Bankruptcy? No problem! Approval Guaranteed!” The advertisements failed to mention that consumers could only use the “line of credit” to make purchases from Global Gold’s on *1099 line store. 1 Consumers who clicked on the advertisements would be taken to so-called “landing pages,” which were deceptive websites where consumers could sign up for the scheme. Consumers entered personal data on two screens, which contained check boxes indicating that the customers agreed to certain terms and conditions, as well as a privacy policy.

A section entitled “Offer Details” appeared in small print further down the page, below the “Submit” button. The details stated that customers would be charged a $39.95 monthly fee if they did not cancel the service, and that they would be automatically signed -up for additional programs, each of which had its own “free trial” period, followed by recurring monthly charges.

The terms and conditions suggested that consumers would receive a traditional credit card. Hidden deep in the fine print, however, the terms and conditions noted that the line of credit could only be used “to purchase merchandise exclusively at the Global Gold Credit Services Web site.” The terms and conditions also noted, more than twenty paragraphs into the fine print that the consumer “accepted enrollment for up to 2 additional promotional product offers.... ”

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Bluebook (online)
763 F.3d 1094, 2014 WL 3973402, 2014 U.S. App. LEXIS 15760, Counsel Stack Legal Research, https://law.counselstack.com/opinion/federal-trade-commission-v-grant-connect-llc-ca9-2014.