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Federal Trade Commission v. Consumer Health Benefits Association

August 18, 2011


The opinion of the court was delivered by: Roanne L. Mann, United States Magistrate Judge:


Currently pending before this Court is an application by plaintiff Federal Trade Commission ("FTC") to amend the original complaint in this action to add a series of new corporate and individual defendants (hereinafter "Proposed Defendants"). The Proposed Defendants oppose the application on two grounds: that the amendment is futile and unduly prejudicial. For the reasons that follow, the objections of the Proposed Defendants are overruled, and the FTC's request to amend is granted.*fn1


The FTC filed this action on August 3, 2010, against the following entities (collectively, "Corporate Defendants"): Consumer Health Benefits Association ("CHBA"), National Association for Americans ("NAFA"), National Benefit Consultants, LLC ("NBC"), National Benefits Solutions, LLC ("NBS"); and against the following individuals (collectively, "Individual Defendants"): Ron Werner, individually and as a Managing Member of CHBA,NBC and NBS, and Rita Werner, individually and as a Senior Vice President and Director of Operations at CHBA ("the Werners"); and Louis Leo ("Leo"), individually and as a Managing Member of CHBA, NBC and NBS (all original defendants collectively, "Original Defendants"). See Complaint (Aug. 3, 2010) ("Compl."), Electronic Case Filing ("ECF") Docket Entry ("D.E.") #1. The original complaint alleges that the Corporate Defendants "marketed, distributed or sold a medical discount plan to consumers" throughout the United States, and that the Individual Defendants "formulated, directed, controlled, had the authority to control, or participated in the acts and practices" alleged in the complaint. Id. ¶¶ 5-11. In essence, the FTC alleges that the Corporate Defendants operated a common enterprise involving deceptive marketing of a medical discount plan (the "Plan") in violation of Sections 13(b) and 19 of the Federal Trade Commission Act ("FTC Act"), 15 U.S.C. §§ 53(b) and 57b, and the Telemarketing and Consumer Fraud and Abuse Prevention Act, 25 U.S.C. §§ 6101-6108. See Compl. ¶¶ 1, 13.

After various fits and starts in the litigation,*fn2 the FTC wrote to the Court on May 6, 2011, seeking leave to file a motion to amend its complaint. See Letter from FTC to the Court (May 6, 2011) ("5/6/11 FTC Letter"), D.E. #167. The FTC claims that "[e]vidence the FTC uncovered since it filed the complaint reveals that the common enterprise that perpetrated this deception is broader than the already-named defendants, and that [the following] additional parties are also responsible," FTC Memorandum of Points and Authorities in Support of its Motion to Amend (June 20, 2011) ("FTC Mem.") at 1, D.E. #204:

* Guarantee Trust Life Insurance Co. ("GTLI")

* Vantage America Solutions, Inc. ("VAS"), a wholly owned subsidiary of GTLI

* Century Senior Services ("CSS"), 90-percent owned by a wholly-owned subsidiary of GTLI (the four aforesaid entities collectively, "Proposed Corporate Defendants")

* Jeffrey Burman ("Burman"), President of VAS and Vice President of GTLI

* Richard Holson, III ("Holson"), Chairman of the Board, President and C.E.O. of GTLI

* Barbara Taube ("Taube"), Senior Vice President of Finance and C.F.O. of GTLI (GTLI, Holson and Taube collectively, "GTLI Defendants")

* John Schwartz ("Schwartz"), member of NBC and NBS

* Wendi Tow ("Tow"), member of NBC and NBS (Holson, Taube, Schwartz and Tow collectively, "Proposed Individual Defendants")

See 5/6/11 FTC Letter at 1.

None of the Original Defendants has opposed the FTC's motion to amend, see 5/6/11 FTC Letter at 1-2,*fn3 but the Proposed Corporate Defendants submitted a letter objecting to the FTC's request. See Letter in re: Objections to Motion to Amend (May 12, 2011), D.E. #171. At the Court's direction, see Order (May 16, 2011), D.E. #178, the FTC served and filed a copy of the proposed amended Complaint, see Proposed First Amended Complaint (May 18, 2011) ("PAC"), D.E. #182, and the Court set a briefing schedule. See Order re: PAC (June 9, 2011) ("6/9/11 Order"), D.E. #195; see also Order (June 10, 2011), D.E. #198 (granting motion for extension); Order (July 1, 2011) ("7/1/11 Order"), D.E. #215 (same).

Thereafter, the FTC formally moved to amend the complaint, see Motion to Amend Complaint (June 20, 2011), D.E. #203; FTC Mem., proffering supporting affidavits with attached exhibits. See Declaration of Karen Dahlberg (Jun 20, 2011), D.E. #205; Declaration of Cindy Kapadia (Jun 20, 2011), D.E. #206. All of the Proposed Defendants then filed submissions in opposition, see Response in Opposition by Corporate Defendants, Holson, Burman and Taube (July 5, 2011) ("Def. Opp."), D.E. #216; Response in Opposition by Schwartz and Tow (July 6, 2011) ("Schwartz/Tow Opp."), D.E. #218,*fn4 arguing that the FTC's motion is "unduly prejudicial" and "the content . . . is insufficient to state a claim." Def. Opp. at 3; see also Schwartz/Tow Opp. at 2. The FTC responded with its Reply Memorandum in Support of Its Motion to Amend Its Complaint (July 12, 2011) ("FTC Reply"), D.E. #221.


"The decision whether to grant leave to amend is generally governed by Rule 15(a) [of the Federal Rules of Civil Procedure], and is within the sound discretion of the Court." Rissman v. City of New York, No. 01Civ.6284 (SHS)(DF), 2001 WL 1398655, at *1 (S.D.N.Y. Nov. 9, 2001) (citing Foman v. Davis, 371 U.S. 178, 182 (1962)); see also Local 802, Associated Musicians v. Parker Meridien Hotel, 145 F.3d 85, 89 (2d Cir. 1998) (noting that the trial court has "broad" discretion in ruling on a motion to amend). Rule 15(a) instructs courts to "freely grant[]" leave to amend "when justice so requires." Baergas v. City of New York, No. 04CIV2944(BSJ)(HBP), 2005 WL 2105550, at *7 (S.D.N.Y. Sept. 1, 2005) (collecting cases). "Where the proposed amendment seeks to add new defendants, however, Rule 21 governs. Under Rule 21, a party may be added to an action 'at any stage of the action and on such terms as are just.'" Rissman, 2001 WL 1398655, at *1 (citing Fed. R. Civ. P. 21) (additional internal citations omitted). "In deciding whether to ...

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