United States District Court, E.D. New York
MEMORANDUM AND ORDER
I. LEO GLASSER, Senior District Judge.
Plaintiff, the Federal Trade Commission ("FTC"), brings this action against Instant Response Systems, LLC ("IRS") and Jason Abraham ("Abraham, " collectively, "Defendants"), alleging that Defendants violated Section 5(a) of the Federal Trade Commission Act ("FTC Act"), codified at 15 U.S.C. § 45(a); the Telemarketing Sales Rule ("TSR"), 16 C.F.R. §§ 310.1-310.9; and the Unordered Merchandise Statute ("UMS"), 39 U.S.C. § 3009. The FTC moves, pursuant to Federal Rule of Civil Procedure 56, for summary judgment. For the reasons that follow, the motion is GRANTED.
I. Factual Background
The following facts are undisputed. Abraham is the founder, owner, and chief executive officer ("CEO") of IRS, a registered New York Limited Liability Company located in Brooklyn, New York. FTC's Local Rule 56.1 Statement of Facts ("FTC SOF") ¶¶ 1-2. At the time Abraham founded IRS in March 2008, he was subject to a permanent injunction issued by the United States District Court for the District of Columbia on December 1, 2003. Id. ¶ 5. The injunction-the product of a 2003 FTC lawsuit against him for selling fraudulent identification documents and academic degrees-permanently banned him from making material misrepresentations in the sale of any goods or services. Id.; Plaintiff's Exhibit ("PX") 7.
IRS sells a medical alert monitoring service and equipment to the elderly. FTC SOF ¶¶ 8, 16-17. The equipment includes a pendant with a button that connects consumers to emergency dispatchers. Id. ¶¶ 16-17. As CEO of IRS, Abraham leads virtually all aspects of the business, including hiring, training, overseeing, and firing employees, and managing corporate finances. Id. ¶¶ 55-71, 73-90. Shortly after forming IRS, Abraham recruited and hired telemarketers via online ads. Id. ¶ 74. He also hired two key employees: Leticia Dumitras, who handled payroll and data entry (id. ¶ 88), and Lori Kennegeisser,  who handled billing and collections. Id. ¶ 83.
A. IRS Telemarketing Calls
IRS telemarketers used lists of customer phone numbers, or "leads, " which Abraham obtained from paid lead generators in the Philippines. Id. ¶¶ 69, 74. Abraham testified that he did not take any steps to confirm whether the lead generators were filtering out numbers listed on the National Do Not Call Registry. Id. ¶ 12; PX 11 at 82:4-7. IRS' telemarketing targeted primarily consumers over the age of 64, who lived alone, and had a limited or fixed income. FTC SOF ¶¶ 8-9, 106.
Using a scripted sales pitch, telemarketers falsely told consumers that they were calling in response to a request for information about medical alert services. Id. ¶ 14; PX 1 at 64:13-65:1. Some consumers were told that a family member or loved one asked IRS to contact them. FTC SOF ¶ 14. After describing the medical alert equipment and monitoring service (id. ¶ 15), telemarketers told consumers that they could order either a lifetime monitoring service, which cost $1, 128, or a three-year service, which cost $128 plus $36 per month. Id. ¶ 22. Consumers were required to provide their bank account information to place an order. Id. at ¶ 24. Defendants used the Automated Clearing House-a system for transferring funds electronically-to withdraw money from the consumers' accounts. PX 1 at 113:18-118:3. To create a paper trail of the transaction, an IRS employee would enter the consumer's bank account information into a check template. Id. at 114:4-19. The check did not bear the consumer's signature; instead it would display the consumer's name and state that the consumer authorized the transfer. Id.; PX 14 at 6 (FTC-IRS_000108). Abraham would sign the checks, which were then deposited into company bank accounts. PX 1 at 114:4-19; FTC SOF ¶ 26.
IRS telemarketers called consumers who never requested information about medical alert services. Id. ¶ 10. They also called consumers whose phone numbers were on the National Do Not Call Registry, and who did not give IRS prior written authorization for the calls. Id. ¶¶ 11-12.
B. Misrepresentations and Threats to Consumers
Many consumers who did not order the medical alert services nevertheless received sales invoices from IRS. Id. ¶¶ 31-32. These invoices often stated: "As you agreed in our conversation, please send a check for $1, 196 in the enclosed stamped envelope.... We ask that you send your payment NOW so that we can ship your lifesaving system to you immediately." Id. ¶ 32 (emphasis in original). Other consumers received merchandise from IRS that they never ordered. Id. ¶ 33.
When these consumers refused to pay, IRS sent follow-up letters that flagrantly accused them of ordering their services and demanded immediate payment. Id. ¶¶ 36-39. These letters, written by Abraham under a variety of aliases, urged consumers to "consult an attorney" about "the criminal and civil consequences of bouncing checks, " and advised that "if a lawsuit is filed against you and you lose, you could be libel [sic] for thousands of dollars to pay the amount awarded, court costs, attorney fees, and/or punitive damages, in addition to your own attorney costs." PX 32.1 at 19 (FTC 00243); FTC SOF ¶¶ 92-93, 96. Other letters admonished: "You ought to be ashamed and embarrassed!" PX 32.1 at 47 (FTC 00271); see also PX 13 at 12; PX 16 at 12; PX 19 at 16. One consumer testified that she received a letter stating that if she did not pay for the unordered merchandise that she received, it would be considered "STOLEN." Id. ¶ 41 (emphasis in original). The letter attached what it claimed was a "Stolen Property Police Department Form" that was "completed and ready to be filed." Id. That consumer had attempted to return the merchandise but was unable to do so for over four months because IRS representatives would not provide a return address. PX 17 ¶¶ 7-10.
In addition to the letters, some consumers received repeated follow-up calls from IRS telemarketers seeking payment for services that they never ordered. FTC SOF ¶ 44. One consumer who initially declined to order the services eventually provided her bank account information just to stop a persisting telemarketer from calling her. Id. ¶ 29. Another consumer who did not order the services testified that telemarketers left multiple messages on her answering machine, claiming that her credit was in jeopardy if she did not call IRS immediately. Id. ¶ 45; PX 12. Many consumers reported threatening calls from Kennegeisser, who at times used the alias "Ruby Wilson." FTC SOF ¶¶ 47-50. Kennegeisser told one consumer who did not order the services that she was an attorney and threatened to have the consumer arrested if she did not pay IRS immediately. Id. ¶ 48.
Abraham personally reviewed and responded to over 100 consumer complaints. Id. ¶¶ 99-100. He also fired at least "two or three" employees for being abusive to consumers. Id. ¶ 101; Abraham's Rebuttal to the FTC's Rule 56.1 Statement of Facts ("Abraham SOF") at 56-57. Between 2008 through February 2013, the FTC and the New York Attorney General's Office received approximately 131 consumer complaints about IRS' sales practices. FTC SOF ¶¶ 105-106. In 2012, the New York Attorney General's Office investigated IRS and obtained a sworn affidavit from Abraham regarding his involvement in the company's activities. Id. ¶ 103.
Abraham testified that IRS' reported gross revenue from 2009 through February 2013 was over $3.4 million. Id. ¶ 53; PX 1 at 182:10-25; 190:19-21; 211:8-217:8. Pursuant to the Preliminary Injunction issued by the Court on March 15, 2013, the FTC has frozen several of Abraham's bank accounts at TD Bank with balances totaling $1, 483. Id. ¶ 107.
II. Procedural Background
On February 25, 2013, the FTC filed its Complaint against Abraham and IRS for violations of Section 5(a) of the FTC Act, the TSR, and the UMS. Dkt. No. 1. That same day, the Court granted a Temporary Restraining Order against Defendants (Dkt. No. 10), and on March 15, 2013, entered a Preliminary Injunction against Defendants. Dkt. No. 19. On June 6, 2013, Defendants' attorney withdrew from the case (Dkt. No. 24), and on July 24, 2013, Abraham, appearing pro se, filed an Answer on his own behalf. Dkt. No. 28. After Abraham failed to retain counsel for IRS, on January 31, 2014, the Court granted a default judgment and issued an order for a permanent injunction and monetary relief of $3, 432, 462 against IRS. Dkt. No. 65.
On June 6, 2014, the FTC filed its Motion for Summary Judgment against Abraham on all counts of its Complaint. Dkt. No. 70. The Motion seeks an order for injunctive and monetary relief. Abraham filed his Memorandum of Law to Strike the FTC's Motion for Summary Judgment ("Response") on July 24, 2014. Dkt. No. 74. The FTC filed its Reply in Support of its Motion for Summary Judgment on August 15, 2014. Dkt. No. 73. On November 12, 2014, the Court held a status conference regarding the FTC's proposed order for a permanent injunction and monetary judgment against Abraham. Dkt. No. 75. In response to the Court's request, the FTC submitted a revised proposed order for a permanent injunction and monetary judgment on December 3. Dkt. No. 76. The Court permitted Abraham to file a Supplemental Response to the FTC's motion papers ("Abraham Supp."), which he filed on December 9. Dkt. No. 77. On December 15, the FTC submitted a Reply in Opposition to Abraham's Supplemental Response ("Supp. Reply"). Dkt. No. 78.
I. Legal Standard
Summary judgment is appropriate where the admissible evidence and pleadings demonstrate "no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a); accord Summa v. Hofstra Univ., 708 F.3d 115, 123 (2d Cir. 2013). A dispute about a material fact is genuine if the "evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). In ruling on a motion for summary judgment, the court must view all evidence "in the light most favorable to the non-moving party, " Overton v. N.Y. State Div. of Military & Naval Affairs, 373 F.3d 83, 89 (2d Cir. 2004), and "resolve all ambiguities and draw all permissible factual inferences in favor of the party against whom summary judgment is sought." Sec. Ins. Co. of Hartford v. Old Dominion Freight Line, Inc., 391 F.3d 77, 83 (2d Cir. 2004).
"A party asserting that a fact... is genuinely disputed must support the assertion by citing to particular parts of materials in the record" such as depositions, affidavits, admissions, or other documentation. See Fed.R.Civ.P. 56(c)(1)(A); see also Kelly v. Signet Star Re, LLC, 971 F.Supp.2d 237, 243 (D. Conn. 2013) (non-moving party must present affirmative evidence to defeat properly supported summary judgment motion). "[U]nsupported allegations do not create a material issue of fact, " Weinstock v. Columbia Univ., 224 F.3d 33, 41 (2d Cir. 2000), and "[c]onclusory allegations or denials are ordinarily not sufficient to defeat a motion for summary judgment when the moving party has set out a documentary case." Scott v. Coughlin, 344 F.3d 282, 287 (2d Cir. 2003). The non-moving party also cannot rely on "mere assertions that affidavits supporting the motion are not credible." See Gottlieb v. Cnty. of Orange, 84 F.3d 511, 518 (2d Cir. 1996) (internal citation omitted). "When no rational jury could find in favor of the non-moving party because the evidence to support its case is so slight, there is no genuine issue of material fact and a grant of summary judgment is proper." Gallo v. Prudential Residential Servs., 22 F.3d 1219, 1224 (2d Cir. 1994).
The FTC moves for summary judgment on all five counts in its Complaint. Count One asserts a violation of Section 5(a) of the FTC Act based on Defendants' alleged misrepresentations that consumers ordered medical alert services and owed money to Defendants. (Compl. ¶¶ 30-32). Counts Two, Three, and Four allege violations of the TSR, 16 C.F.R. §§ 310.1-310.9, based on Defendants' alleged misrepresentations to induce consumers to pay for the IRS services, (Compl. ¶¶ 43-44); Defendants' use of threats or intimidation to coerce consumers to pay them (id. ¶¶ 45-46); and Defendants' calls to consumers whose numbers appear on the National Do Not Call Registry (id. ¶ 47). Count Five alleges that Defendants mailed unordered merchandise to consumers in violation of Section 3009(a) and (c) of the Unordered Merchandise Statute, 39 U.S.C. § 3009, (Compl. ¶¶ 50-52).
A. Evidentiary arguments
As an initial matter, the Court addresses Abraham's objections to evidence the FTC submitted in support of its motion-namely, seven sworn declarations from the caretakers of elderly consumers who were contacted by IRS, and 131 Better Business Bureau ("BBB") complaints. His argument that the evidence is inadmissible as hearsay is without merit and irrelevant. See Response at 4-5; 55-56. The FTC correctly argues that the evidence is admissible under Federal Rule of Evidence 807, the "residual exception" to the hearsay rule. Rule 807 allows parties to use statements that would otherwise constitute hearsay if "(1) the statement has equivalent circumstantial guarantees of trustworthiness; (2) is offered as evidence of a material fact; (3) is more probative on the point for which it is offered than any other evidence that the proponent can obtain through reasonable efforts; and (4) admitting it will best serve the purposes of [the Federal Rules of Evidence] and the interests of justice;" and (5) "the proponent gives an adverse party reasonable notice of the intent to offer the statement and its particulars, including the declarant's name and address, so that the party has a fair opportunity to meet it." Fed.R.Evid. 807.
The caretakers' declarations-hearsay only to the extent they are offered to prove the truth of the statements made to the elderly consumers-recite similar and consistent factual accounts about the consumers' experiences with IRS and the misrepresentations at issue. In particular, they describe the letters and phone calls demanding payment for unordered services and the threatening calls from IRS telemarketers. The declarations are also corroborated by letters and invoices from IRS that other consumers have provided, which reinforces their trustworthiness. Finally, it would be unduly wasteful of time and burdensome for the FTC to call each aggrieved consumer to testify, and the interests of justice are therefore best served by using the caretakers' declarations. See Fed.R.Evid. 807.
The BBB complaints are also admissible under Rule 807 given their inherent "guarantees of trustworthiness" as corroborating reports of the Defendants' misrepresentations, which were sent spontaneously by unrelated individuals to a government agency. See FTC v. Magazine Solutions, LLC, Civil Action No. 7-692, 2009 WL 690613, at *1 (W.D. Pa. Mar. 16, 2009) (admitting consumer complaints to BBB in part because "[t]he consistency of the representations" described in consumers' letters reinforced the trustworthiness of the complaints). Furthermore, "reasonable effort would not produce evidence that is more probative" than contemporaneous reports of Defendants' misconduct, and admitting the BBB complaints will therefore best serve the interests of justice. See FTC v. Figgie Int'l Inc., 994 F.2d 595, 608-09 (9th Cir. 1993); see also FTC v. Cyberspace.com, Civ. No. 1806, 2002 WL 32060289 (W.D. Wa. July 10, 2002) (quoting Figgie and admitting emails and letters of complaint under Rule 807), aff'd, 453 F.3d 1196 (9th Cir. 2006).
B. Section 5(a) of the FTC Act
Count One alleges a violation of Section 5(a) of the FTC Act, which prohibits "unfair or deceptive acts or practices in or affecting commerce." 15 U.S.C. § 45(a). To prove a deceptive act or practice under Section 5(a), the FTC must prove three elements: (1) a representation, omission, or practice, (2) that is likely to mislead consumers acting reasonably under the circumstances, and (3) the representation, omission, or practice is material. FTC v. Verity Int'l, 443 F.3d 48, 63 (2d Cir. 2006). Express claims that are shown to be false are presumed material. See Med. Billers, 543 F.Supp.2d at 304. "The deception need not be made with intent to deceive; it is enough that the representations or practices were likely to mislead consumers acting reasonably." Verity, 443 F.3d at 63 (citing FTC v. World Travel Vacation Brokers, Inc., 861 F.2d 1020, 1029 (7th Cir. 1988)).
There is no genuine dispute that Defendants, in letters and phone calls, made material misrepresentations that consumers ordered medical alert services and owed IRS money when, in fact, they did not. The FTC has submitted sworn declarations from consumers (or their caretakers) who received letters or phone calls from IRS, accusing them of owing money for a medical alert system that they never ordered. Additionally, the FTC submitted BBB complaints from consumers making similar allegations.
In response, Abraham argues that Defendants made no material misrepresentations because the complaining consumers did order the services and their complaints are "feeble attempts... to avoid paying their debts legitimately owed to IRS." Response at 4. He contends that the existence of an internal Subscriber Identification Number ("SIN") assigned to each complaining consumer's alleged order "proves that [the consumer] subscribed and agreed to pay, " and "IRS would not have billed... for the equipment had [the consumer] not subscribed and agreed to pay." Abraham SOF at 13. Other than his saying so, he presents no admissible evidence to show that the complaining consumers actually subscribed and agreed to pay for the services.
As the sole evidentiary support for his assertion, Abraham submitted an unsworn affidavit from Dumitras (see Written Testimony of Leticia Dumitras, Dkt. No. 74 at 123, ("Dumitras Testimony")), which was not signed under penalty of perjury and is thus inadmissible. See, e.g., United States v. All Right, Title & Interest in Real Prop. & Appurtenances, 77 F.3d 648, 657-58 (2d Cir. 1996) ("[T]he submission of [an] unsworn letter was an inappropriate response to the... motion for summary judgment, and the factual assertions made in that letter were properly disregarded by the court"). And even if it were admissible, it fails to satisfy Rule 56(c)(4)'s requirement that affidavits used to oppose summary judgment must be "made on personal knowledge" and "set out facts that would be admissible in evidence." As an independent contractor for IRS who handled payroll and data entry, Dumitras lacks personal knowledge of the consumer complaints or the calls at issue. See PX 1 at 13:5-25. Her job did not involve communicating with consumers; rather, she received consumer names from IRS telemarketers and then assigned them SIN numbers. See Dumitras Testimony at 7:8-14. And although she allegedly listened to "dozens" of calls with consumers, she does not state whether she listened to calls between IRS agents and the complaining consumers. See Response at 38. Notably, Abraham does not provide affidavits from the telemarketers who spoke with consumers-most importantly, Kennegeisser. He states repeatedly that all calls with consumers were recorded, but provides not a single record of them.
Finally, Abraham's attacks on the complaining consumers-for example, that one consumer who submitted a declaration "obviously has serious ethical and/or mental issues from which the public should be protected" (Abraham SOF at 33)-amount to nothing more than "mere assertions that the affidavits supporting the [FTC's] motion are not credible, " which cannot defeat the FTC's motion for summary judgment. See Gottlieb, 84 F.3d at 518. He has presented no affirmative evidence to support his assertions, and "the mere existence of some alleged factual dispute between the parties alone will not defeat a properly supported motion for summary judgment." See Garnett-Bishop v. New York Cmty. Bancorp, Inc., No. 12-cv-2285, 2014 WL 4700222, at *5 (E.D.N.Y. Sept. 22, 2014) (internal quotations and citations omitted). "In the face of [the FTC's] well-supported summary judgment motion, [Abraham's] conclusory denials are insufficient to create a disputed issue of material fact" as to whether Defendants made material misrepresentations to consumers. See Soares v. Univ. of New Haven, 154 F.Supp.2d 365, 376 (D. Conn. 2001). Summary judgment is therefore granted to the FTC on Count One.
C. The TSR
Counts Two through Four allege violations of the TSR. Any violation of the TSR is deemed a "deceptive act or practice" in violation of Section 5(a) of the FTC Act. 15 U.S.C. § 6102(c); 16 C.F.R. § 310.1. There is no question, and Abraham does not dispute, that Defendants are "sellers" or "telemarketers" that engaged in "telemarketing" and are thus subject to the TSR.
1. False or Misleading Statement to Induce Payment
The FTC claims that Abraham violated the TSR by making false or misleading statements to induce consumers to pay for goods or services. See FTC Memorandum in Support of its Motion for Summary Judgment ("Memorandum") at 19; 16 C.F.R. § 310.3(a)(4). As discussed supra, Section II.B., the FTC has established that there is no genuine dispute of material fact that Defendants, in an effort to induce payment, made misleading statements that consumers ...