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Federal Trade Commission v. Paul Navestad Aka Paul Richard Individually Decision and Doing

March 23, 2012

FEDERAL TRADE COMMISSION, PLAINTIFF,
v.
PAUL NAVESTAD AKA PAUL RICHARD INDIVIDUALLY DECISION AND DOING BUSINESS AS THE CASH GRANT INSTITUTE, AND GLOBAL AD AGENCY, GLOBAL ADVERTISING AGENCY, DOMAIN LEASING COMPANY AND/OR CASH GRANT SEARCH, AND CHINTANA MASPAKORN AKA CHRISTINA MASPAKORN INDIVIDUALLY AND DOING BUSINESS AS THE CASH GRANT INSTITUTE, GLOBAL AD AGENCY, GLOBAL ADVERTISING AGENCY, DOMAIN LEASING COMPANY AND/OR CASH GRANT SEARCH, DEFENDANTS.



The opinion of the court was delivered by: Michael A. Telesca United States District Judge

INTRODUCTION

ORDER

Plaintiff Federal Trade Commission ("FTC") brings this action against the defendants alleging that they have violated the Federal Trade Commission Act ("FTC Act" or the "Act") by engaging in unlawful telemarketing and internet-marketing schemes. Plaintiff also alleges violations of the Telemarketing Sales Rule ("TSR") promulgated under the Telemarketing and Consumer Fraud and Abuse Prevention Act ("the Telemarketing Act"). Specifically, plaintiff claims that the defendants have engaged in unfair and deceptive practices by advertising the availability of private and/or governmental cash grants to individuals for almost any purpose, and then charging fees for information related to the alleged grants.

According to the plaintiff, the cash grants are deceptively advertised as being widely available and instantly or quickly available to individuals, when in fact, such grants are not widely available, often require extensive application processes, and take months to receive.

Plaintiff now moves for summary judgment against defendants Navestad and Maspakorn contending that there are no material facts in dispute, and that as a matter of law, the FTC is entitled to judgment in its favor. Specifically, inter alia, the FTC seeks an Order from this court: (1) permanently enjoining the defendants from marketing or selling credit related goods or services, (2) permanently enjoining the defendants from violating the telecommunications act or engaging in fraudulent marketing schemes; (3) awarding a Judgment in favor of the FTC against Navestad in the amount of $1,105,078.96 as disgorgement for Navestad's unjust enrichment; (4) awarding Judgment in favor of the FTC against Navestad in the amount of $20,000,000 in civil penalties for violations of the Telemarketing Act. Defendant Maskaporn has not opposed the plaintiff's motion. Defendant Navestad opposes the FTC's motion on grounds that there are numerous questions of fact in dispute, and therefore, summary judgment is inappropriate.

For the reasons set forth below, I find that there are no material issues of fact in dispute, and that the FTC has demonstrated as a matter of law that it is entitled to the relief it seeks. I therefore grant plaintiff's motion for summary judgment.

DISCUSSION

In June 2009, Plaintiff, the Federal Trade Commission ("FTC" or "Commission"), filed a Complaint ("Complaint") pursuant to Sections 5(a), 5(m)(1)(A), 13(b), 16(a) and 19 of the FTC Act, 15 U.S.C. §§ 45(a), 45(m)(1)(A), 53(b), 56(a), and 57b, and Section 6 of the Telemarketing and Consumer Fraud and Abuse Prevention Act (the "Telemarketing Act"), 15 U.S.C. § 6105, seeking to obtain temporary, preliminary, permanent injunctive relief, civil penalties, disgorgement of allegedly ill-gotten monies, and other equitable relief, for the Defendants' alleged acts or practices in violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a), and the FTC's Telemarketing Sales Rule ("TSR"), 16 C.F.R. Part 310. According to the plaintiff, the defendants were engaged in an extensive and fraudulent telemarketing scheme in which they made more than 8 million automated telephone calls, also known as "robocalls" to telephone numbers in the United States in violation of federal Telemarketing Sales Rules. Generally, the calls invited recipients to visit websites where the visitors could learn about obtaining "cash grants" from federal, state, and local governments, private foundations, and "wealthy individuals". Both the phone calls and the websites represented that cash grants were available for almost any purpose, including paying off personal debt, were simple to obtain, could be obtained very quickly, and that the recipient of the call was already qualified to obtain the grants.

Upon visiting one of the defendants' websites, the consumer would be directed to yet another website that would charge a fee for providing information about cash grants from public or private sources. The defendants received fees for referring consumers to the fee-charging websites. The fee-charging websites did not provide grants to any consumers, and unlike the defendants' phone calls and websites, disclosed that it was very difficult to obtain cash grants from public or private sources, that very few people qualified for such grants, and that obtaining a grant generally involved a lengthy, competitive application process. In addition to providing consumers with false and misleading information, the defendants also allegedly made more than 2.7 million calls to consumers who were on the national "do not call" registry. The defendants calls also failed to connect consumers to a live operator, if so requested by the consumer, within two seconds, as required by law.

Defendants Navestad and Maspakorn have each invoked their rights under the Fifth Amendment to the United States Constitution to not incriminate themselves by responding to plaintiff's interrogatories, requests for admissions, and discovery demands including requests to take testimony from the defendants. Nevertheless, Navestad opposes the plaintiff's motion for summary judgment on grounds that the plaintiff has failed to establish that he was responsible for the alleged illegal activity. Specifically, Navestad alleges that he was merely a consultant for the companies that engaged in the alleged wrongdoings. Navestad alleges that there are several material questions of fact in dispute, and that the evidence submitted by the plaintiff fails to establish violations of the FTC Act, the Telecommunications Act or rules promulgated thereunder.

I. Standard Of Review

A. Summary Judgment Standard

Rule 56(c) of the Federal Rules of Civil Procedure provides that summary judgment "should be rendered if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law."

When considering a motion for summary judgment, all genuinely disputed facts must be resolved in favor of the party against whom summary judgment is sought. Scott v. Harris, 550 U.S. 372, 380 (2007). If, after considering the evidence in the light most favorable to the nonmoving party, the court finds that no rational jury could find in favor of that party, a grant of summary judgment is appropriate. Scott, 550 U.S. at 380 (citing Matsushita Elec. Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 586-587 (1986)).

B. Defendant Navestad's invocation of his Fifth Amendment Privilege.

Defendant Navestad has refused to answer the plaintiff's interrogatories, requests for admission, and has refused to be deposed by invoking his Fifth Amendment right to be free from self incrimination. As a result, the FTC argues that the court may draw a negative inference from the defendant's refusal to answer specific interrogatories or requests for admission.

While a party may properly assert his or her Fifth Amendment right to be free from self incrimination, the assertion of that right is not without consequence. If the party asserting the right is unable to produce evidence to counter the opposing party's evidence, "the claim of privilege will not prevent an adverse finding or even summary judgment" against that party. United States v. Certain Real Property and Premises Known as: 4003--4005 5th Ave., Brooklyn, N.Y., 55 F.3d 78, 83 (2d Cir.1995). However, a party's inability to produce contrary or exculpatory evidence will not, in and of itself, warrant a finding against the party asserting the privilege. Rather, just as in cases where the privilege is not asserted, the party seeking judgment in its favor must prove, by the applicable quantum of evidence, that it is entitled to relief. As the Supreme Court stated in United States v. Rylander, 460 U.S. 752, 758, 103 S.Ct. 1548, 75 L.Ed.2d 521 (1983), "while the assertion of the Fifth Amendment privilege against compulsory self-incrimination may be a valid ground upon which a witness ... declines to answer questions, it has never been thought to be in itself a substitute for evidence that would assist in meeting a burden of production."

The FTC contends that this court may draw a negative inference from Navestad's assertion of his Fifth Amendment rights. While it is "settled law that a trier of fact may draw an adverse inference in a civil action against a party who invokes the Fifth Amendment privilege, application of such a rule in the context of a summary judgment motion presents a potential conflict, as courts considering such motions are "admonished to construe all evidence, including the defendants' silence, in a light most favorable to the nonmoving party." Fidelity Funding of Cal., Inc. v. Reinhold, 79 F.Supp.2d 110, 116-117 (E.D.N.Y.1997). See also In re Jacobs, 394 B.R. 646, 663-664 (Bkrtcy. E.D.N.Y., 2008)(acknowledging that at the summary judgment stage, "several courts" have declined to draw a negative inference based on a party's invocation of Fifth Amendment rights.)

In the instant case, I find that the court need not draw a negative inference from either Navestad or Maspakorn's silence. The FTC, in making its case for the granting of its motions for summary judgment, has submitted copious amounts of evidence supporting each and every element of its claims. Indeed, in many instances, the FTC has supported its assertions with several evidentiary sources, including witness statements, correspondence, and business records such as contracts and financial statements.*fn1 The defendants, through their silence, have failed to rebut the evidence, and because the FTC has affirmatively demonstrated through evidence that it is entitled to the relief it seeks, the court need not rely on any negative inference from the defendants' assertion of their Fifth Amendment rights to establish that the FTC is entitled to relief.*fn2 In short, the thorough and detailed evidence submitted by the FTC establishes that it is entitled to summary judgment

II. Plaintiff has established violations of the FTC Act.

Section 5(a) of the FTC Act prohibits "unfair or deceptive acts or practices in or affecting commerce." 15 U.S.C. § 45(a). "To prove a deceptive act or practice in violation of Section 5(a) of the FTC Act, the FTC must show: (1) a representation, omission, or practice that (2) is likely to mislead consumers acting reasonably under the circumstances, and that (3) the representation, omission, or practice is material." F.T.C. v. Cantkier, 767 F.Supp.2d 147, 151-52 (D.D.C., 2011). "A representation is material if it 'involves information that is important to consumers and, hence, likely to affect their choice of, or conduct regarding, a product.'" F.T.C. v. Cantkier, 767 F.Supp.2d at 151 (quoting F.T.C. v. Cyberspace.Com LLC, 453 F.3d 1196, 1199 (9th Cir.2006) ).

In the instant case, the FTC has established through the unrebutted evidence submitted to the court that the defendants, through their recorded robocalls and statements made on their websites, made material representations regarding governmental and private grant opportunities that were likely to mislead consumers. Specifically, the defendants, in their automated telephone calls, informed consumers that they were already qualified to receive cash grants from the public or private agencies. Moreover, the robocalls informed consumers that they were qualified to receive government payments for the purpose of reducing their debt. The FTC has established that these claims were material, were false and deceptive, and were made for the purpose of misleading consumers.

Because I find that the evidence submitted by the FTC establishes that the defendants made material false and deceptive statements for purpose of deceiving consumers, I find that the FTC is entitled to summary judgment in its favor with respect to its claims that the defendants have violated the FTC Act.

III. Plaintiff has established violations of the TSR.

The Telemarketing Sales Rule is a regulation promulgated by the FTC pursuant to the Telemarketing Act. Among other things, the TSR created the national "do not call" registry which allows consumers to opt out of receiving unwanted marketing calls. Persons who make soliciting calls to phone numbers registered on the "do not call" list may be subject to fines of up to $11,000 per call. The TSR requires telemarketers to pay a fee to access the "do not call" registry, and to not make calls to phone numbers contained in the registry. Additionally, the TSR requires telemarketers who make unsolicited sales calls to give the recipient of a call the opportunity to speak to a live operator within 2 seconds of making a request to do, and to opt out of future calls. The TSR further prohibits telemarketers from making false or misleading statements to induce a consumer to purchase goods or services.

The FTC has established through the evidence submitted to the court that the defendants have violated the TSR by: making calls to consumers who were registered on the "do not call" list; failing to pay the fee required to access the "do not call" registry; failing to provide an opt-out mechanism for consumers; failing to connect consumers to alive operator within two seconds of a request to do so; and making false statements to consumers in an effort to induce them to pay for services that would allegedly enable them to easily and quickly receive public or private grants.

With respect to calls to consumers on the "do not call list", the FTC has provided documentary and testimonial evidence that Navestad placed at least 2.734 million calls to consumers registered on that list. The FTC has further provided evidence that the defendants failed to access the "do not call" registry by applying to do so and paying the applicable fee for each area code to which the defendants placed calls. The unrebutted evidence further demonstrates that the phone calls placed by the defendants were recorded messages that did not provide consumers with a method for opting out of receiving the phone call, nor did the calls provide consumers with the ability to speak to a live representative. As stated above, the FTC has established that claims made by the defendants in their recorded messages, that the recipients of the calls were already qualified to receive grants that could be used to pay off personal debt, were false, misleading, deceptive, and made with the intent of inducing the consumers to pay for services that would allegedly allow them to receive cash grants from public or private sources. Because the FTC has established the defendants' violations of the TSR, I grant plaintiff's motion for summary judgment.

FINDINGS

Having determined that the plaintiff is entitled to Summary judgment on all counts of the Complaint, I hereby make the following findings and Orders:

1. This Court has jurisdiction over the subject matter of this case and the parties pursuant to 28 U.S.C. §§ 1331, 1337(a), 1345, and 1355, and 15 U.S.C. §§ 45(m)(1)(A), 53(b), 56(a) and 57b. This action arises under 15 U.S.C. § 45(a).

2. Venue in this District is proper under 28 U.S.C. §§ 1391(b), 1391 (d), 1395 (a), and 15 U.S.C. § 53(b).

3. The activities of Defendant Navestad, as alleged in the Complaint, are in or affecting commerce, as defined in Section 4 of the FTC Act, 15 U.S.C. § 44.

4. The Complaint states a claim upon which relief may be granted under Sections 5(a), 5(m)(1)(A), 13(b), 16(a), and 19 of the FTC Act, 15 U.S.C. §§ 45(a), 45(m)(1)(A), 53(b), 56(a), 57b, and Section 6 of the Telemarketing Act, 15 U.S.C. § 6105.

5. Entry of this Order is in the public interest.

DEFINITIONS

For purposes of the remainder of this Decision and Order, the following definitions shall apply:

1. "And" and "or" shall be understood to have both conjunctive and disjunctive meanings.

2. "Asset" means any legal or equitable interest in, right to, or claim to, any real and personal property, including, but not limited to, chattel, goods, instruments, equipment, fixtures, general intangibles, effects, leaseholds, contracts, mail or other deliveries, shares or stock, securities, inventory, checks, notes, accounts, credits, receivables (as those terms are defined in the Uniform Commercial Code), lists of consumer names, accounts, credits, premises, receivables, cash, trusts, including but not limited to asset protection trusts, and reserve funds or other accounts associated with any payments processed on behalf of any Defendant, including, but not limited to, such reserve funds held by a payment processor, credit card processor, or bank.

3. "Assisting others" includes, but is not limited to:

(A) performing customer service functions, including, but not limited to, receiving or responding to consumer complaints;

(B) formulating or providing, or arranging for the formulation or provision of, any marketing material;

(C) providing names of, or assisting in the generation of lists of, potential customers;

(D) performing marketing or billing services of any kind, including but not limited to, creating, hosting, or maintaining websites, or recruiting affiliates;

(E) providing customer relationship management services or products;

(F) providing accounting or financial management services;

(G) processing credit and debit card payments;

(H) hiring employees;

(I) paying, or authorizing the payment of, company expenses;

(J) registering domain names;

(K) opening or managing mailbox accounts;

(L) acting or serving as a consultant or independent contractor of any entity.

4. "Credit - related goods or services" shall mean any business activity that purports directly or indirectly to: (1) provide consumers, arrange for consumers to receive, or assist consumers in receiving loans, financing, credit or debit cards; (2) improve, or arrange to improve, any consumer's credit record, credit history, or credit rating; (3) provide advice or assistance to any consumer with regard to any activity or service the purpose of which is to improve a consumer's credit record, credit history, or credit rating; (4) provide consumers, arrange for consumers to receive, or assist consumers in receiving a loan or other extension of credit;

(5) provide consumers, arrange for consumers to receive, or assist consumers in receiving, debt consolidation, debt relief, or other credit counseling;

(6) provide consumers, arrange for consumers to receive, or assist consumers in receiving, credit monitoring.

5. "Defendant Navestad" means Defendant Paul Navestad.

6. "Defendants" means Defendant Paul Navestad and Defendant Chintana Maspakorn, individually, collectively, or in any combination.

7. "Document" has the meaning set forth in Federal Rule of Civil Procedure 34(a), and includes writings, drawings, graphs, charts, Internet sites, webpages, websites, electronic correspondence, including e-mail and instant messages, photographs, audio and video recordings, contracts, accounting data, advertisements (including, but not limited to, advertisements placed on the World Wide Web),

FTP Logs, Server Access Logs, USENET Newsgroup postings, World Wide Web pages, books, written or printed records, handwritten notes, telephone logs, telephone scripts, receipt books, ledgers, personal and business canceled checks and check registers, bank statements, appointment books, computer records, and other data compilations from which information can be obtained and translated. A draft or non-identical copy is a separate document within the meaning of the term.

8. "Grant" means any product or service referred to as a "grant," or an award of value or financial assistance.

9. "Grant procurement goods or services" means any goods or services which are advertised, offered for sale, or sold to consumers as a method by which consumers may obtain, receive, apply for, or learn how to obtain, receive, or apply for a Grant, disbursement, subsidy, stimulus, or any other kind of financial assistance, including, but not limited to grant procurement brochures, CDs, videotapes, DVDs, and websites.

10. "Including" means "including without limitation."

11. "Person" means a natural person, organization, or other legal entity, including a corporation, partnership, proprietorship, association, cooperative, or any other group or combination acting as an entity.

12. "Representatives" shall have the same scope as Federal Rule of Civil Procedure 65(d)(2), and means Defendants' agents, servants, employees, and attorneys, and any other Person or entity in active concert or participation with them who receives actual notice of this Order by personal service or otherwise.

13. "Telemarketing Sales Rule," or "TSR," means the FTC Rule entitled "Telemarketing Sales Rule," 16 C.F.R. § 310.

ORDER WITH RESPECT TO PAUL NAVESTAD

I. BAN RELATING TO ADVERTISING, MARKETING, PROMOTING, OFFERING FOR SALE, SELLING, OR PROMISING OF GRANTS OR GRANT PROCUREMENT GOODS OR SERVICES

IT IS HEREBY ORDERED that Defendant Navestad, whether acting

directly or through any other Person, corporation, partnership, subsidiary, division, agent, or other device, is permanently restrained and enjoined from engaging, participating, or assisting others in marketing, promoting, generating leads, advertising, offering for sale, or selling grants or grant procurement goods or services.

II. BAN ON MARKETING OR SALE OF CREDIT-RELATED PRODUCTS

IT IS FURTHER ORDERED that Defendant Navestad, whether acting directly or through any other Person, corporation, partnership, subsidiary, division, agent, or other device, is permanently restrained and enjoined from engaging, participating, or assisting others in marketing, promoting, ...


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