Federal Trade Commission v. NHS Systems, Inc.

936 F. Supp. 2d 520, 2013 WL 1285424, 2013 U.S. Dist. LEXIS 45041
CourtDistrict Court, E.D. Pennsylvania
DecidedMarch 28, 2013
DocketCivil Action No. 08-2215
StatusPublished
Cited by4 cases

This text of 936 F. Supp. 2d 520 (Federal Trade Commission v. NHS Systems, Inc.) is published on Counsel Stack Legal Research, covering District Court, E.D. Pennsylvania 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. NHS Systems, Inc., 936 F. Supp. 2d 520, 2013 WL 1285424, 2013 U.S. Dist. LEXIS 45041 (E.D. Pa. 2013).

Opinion

MEMORANDUM

JUAN R/SÁNCHEZ, District Judge.

Plaintiff Federal Trade Commission (FTC) brings this action against corporations and individuals for violations of § 5(a) of the Federal Trade Commission Act (FTCA), 15 U.S.C. § 45(a), and the Telemarketing Sales Rule (TSR), 16 C.F.R. Part' 310. The FTC’s Amended Complaint names the following corporate defendants: NHS Systems, Inc.; Physician Health Service, LLC; Plus Health Savings, Inc.; Physicians Health Systems, Inc.; Health Management, LLC; 6676529 Canada, Inc.; Physicians Health Systems Enterprises, Inc.; First Step Management, Inc.; Gold Dot, Inc.; and Nevada Business Solutions, Inc. (collectively, the “NHS/PHS Defendants”). The FTC also pursues claims against individual defendants, including: Nicole Bertrand; Barry Kirstein; David James Greer; Tasha Jn Paul; and Linke Jn Paul (collectively, the “individual defendants”).1 The FTC asks the Court to hold each of the Defendants liable for engaging in an international enterprise to obtain millions of dollars from United States consumers through deceptive marketing practices and unauthorized charges to financial accounts.

Based upon the facts and evidence in the record, Defendants violated § 5(a) of the FTCA and the TSR. The NHS/PHS Defendants were engaged in a common enterprise and are jointly and severally liable. The individual defendants directly participated in or had authority to control the deceptive practices, knew, or should have known, of the deceptive conduct perpetuated within the corporations, and are personally liable. The Court will grant the FTC’s motion for summary judgment.

FACTS2

The NHS/PHS 'Defendants employed telemarketers to initiate calls to eonsum[527]*527ers, attempt to enroll them in supposed healthcare discount programs, and obtain their financial information. These programs were intended for people who did not have healthcare insurance. Typically, the telemarketers promised consumers they would receive substantial deposits into their bank accounts if they provided their bank account information. They stated the deposits would be in the form of grants, tax refunds, or tax rebates. Instead, the telemarketers would cause the bank accounts to be debited once or multiple times. The telemarketers would use deceptive tactics in an attempt to obtain recorded “verifications” by the consumers for authority to debit their accounts. The NHS/PHS Defendants used recorded telephone verifications as proof of such authorization. Some authorizations were forged or altered. Many consumers who later heard their supposed voice authorizations stated the recording featured imposters or admitted the recording was their own voice, but that the recording was incomplete or manipulated. If a consumer complained about a charge, the NHS/PHS Defendants would typically claim the charges were authorized, even if there was no recorded authorization available or the recorded authorization was available, but contained another person’s voice.

The NHS/PHS Defendants utilized two consumer lists, which apparently contained individuals’ names and contact information and were updated with their financial information if they enrolled in a healthcare program. The first list (“Database 1”) was created by obtaining customer information from multiple pre-December 2006 telemarketing campaigns which had been overseen by several of the individual defendants. Nicole Bertrand and Barry Kirstein testified the NHS/PHS telemarketers sold the consumers in Database 1 various discount healthcare programs and their bank accounts were charged monthly “residuals”' to maintain their membership. The second list (“Database 2”) included all post-December 2006 enrollees who were immediately charged $29.95 to receive information, $299.95 to enroll, and $19.95 per month thereafter. Each NHS/PHS affiliated company used the databases. The financial information contained therein was used to obtain money from consumers’ bank accounts and distribute it throughout the NHS/PHS enterprise.

The FTC takes no position as to whether the underlying discount healthcare programs were legitimate. The FTC focuses on the manner in which consumers’ bank information was obtained and how consumers were charged.. The FTC contends the Defendants’ primary purpose was to deceptively obtain consumers’ financial information and debit their accounts.

During the course of the telemarketing campaign, the NHS/PHS Defendants misrepresented the cost of the discount healthcare programs. Defendants’ telemarketers told the consumers they would not be charged, misstated the cost of the programs, or indicated the consumer would receive a future credit to offset any debit. The NHS/PHS Defendants sold a healthcare program to several customers which was actually a free program. Jan Sesso, CEO of Universal RX, a prescription discount benefit provider, testified his [528]*528company was alarmed when it received multiple calls from consumers indicating they had been charged hundreds of dollars to enroll in a program which was supposed to be offered to consumers free of charge. The NHS/PHS telemarketers also posed as government employees, such as representatives of Medicare, the Internal Revenue Services, and the Social Security Administration.

The NHS/PHS corporations were founded by several of the same individual defendants. In December 2006, PHS Enterprises formed to target consumers listed in Database 1. Bertrand and Kirstein were named as the primary contacts for the entities that processed PHS Enterprises’ payments. In June 2007, Bertrand and Kirstein instructed Harry Bell to form the corporation Plus Health Savings. Plus Health Savings began charging consumers in Database 1 at the direction of Bertrand, Kirstein, and Tasha Jn Paul.

Also in December 2006, NHS Systems formed and began to accumulate and target new consumers, creating the consumer list in Database 2. Bertrand, Kirstein, and Tasha Jn Paul managed NHS Systems. Harry Bell was the nominal president of NHS Systems and was responsible for maintaining the bank accounts and reviewing and forwarding complaint mail received from consumers. Almost immediately, NHS Systems received several consumer complaints about their telemarketers falsely offering grants. By mid-November 2007, Bell was inundated by consumer complaints and emailed Bertrand detailing his concerns. In November 2007, Donna Newman formed Health Management, which began debiting NHS Systems’ consumers’ accounts in Database 2.

In November 2007, Newman formed Physician Health Service and Bell formed Physicians Health Systems. Both companies were a part of a new telemarketing campaign referred to as American Health Benefits on Line, but again were similar to the other corporations in the NHS/PHS enterprise.

After each company was established and began operating, the telemarketers called consumers and attempted to obtain their financial information. The NHS/PHS Defendants then debited consumers’ accounts and transferred the money to one of three “siphoning entities.” These companies included Defendants First Step Management, Gold Dot, and 6676529 Ganada.3 First Step Management received over one million dollars from NHS/PHS Defendants, making it the largest single recipient of such transfers. Linke Jn Paul is listed as First Step Management’s director, and Tasha Jn Paul and David Greer operated the company. Gold Dot received hundreds of thousands of dollars from the NHS/PHS scheme.

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936 F. Supp. 2d 520, 2013 WL 1285424, 2013 U.S. Dist. LEXIS 45041, Counsel Stack Legal Research, https://law.counselstack.com/opinion/federal-trade-commission-v-nhs-systems-inc-paed-2013.