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Federal Trade Commission v. Higher Goals Marketing LLC

United States District Court, M.D. Florida, Orlando Division

November 6, 2019

FEDERAL TRADE COMMISSION, Plaintiff,
v.
HIGHER GOALS MARKETING LLC, SUNSHINE FREEDOM SERVICES LLC, BRANDUN L ANDERSON, LEA A. BROWNELL, MELISSA M. DEESE, GERALD D. STARR, JR., TRAVIS L. TEEL and WAYNE T. NORRIS, Defendants.

          REPORT AND RECOMMENDATION

          LESLIE R. HOFFMAN UNITED STATES MAGISTRATE JUDGE

         TO THE UNITED STATES DISTRICT COURT:

         This cause came on for consideration without oral argument on the following motion filed herein:

MOTION: PLAINTIFF'S MOTION FOR ENTRY OF DEFAULT JUDGMENT AGAINST DEFENDANT HIGHER GOALS MARKETING LLC (Doc. 84)
FILED: March 29, 2019
THEREON it is respectfully RECOMMENDED that the motion be GRANTED.

         I. Background

         The Federal Trade Commission (FTC) filed this action alleging that since July 2016 Defendants Brandun L. Anderson, Lea A. Brownell, Melissa M. Deese, Gerald D. Starr, Jr., and Travis L. Teel acted through Sunshine Freedom Services LLC (SFS), and Higher Goals Marketing LLC (HGM) (collectively, the Defendants) to engage in a telemarketing scheme that defrauded financially distressed consumers throughout the United States by selling them bogus credit-card interest-rate-reduction services. (Doc. 1 at ¶¶ 2, 25). Specifically, the Defendants initiated or directed others to initiate prerecorded telemarketing calls to consumers throughout the United States, many of whom were on the National Do Not Call Registry (Do-Not-Call-Registry), offering them a chance to lower their credit card interest rates. (Id. at ¶¶ 4, 26, 42). The prerecorded message instructed interested consumers to press a number on their keypad, which resulted in the consumer being transferred to a live representative that worked for the Defendants. (Id. at ¶¶ 4, 26). Once connected to a live representative, the consumers were told that the Defendants will substantially and permanently reduce their credit card interest rates resulting in thousands of dollars in savings. (Id. at ¶¶ 5, 27-28, 53). In order to obtain this service, the consumer had to pay the Defendants an up-front fee, which ranged from $500.00 to $5, 000.00. (Id. at ¶¶ 6, 29). However, the Defendants did not inform the consumer prior to payment of the up-front fee that the consumer would likely have to pay additional fees for reduced interest rates. (Id. at ¶¶ 6, 30, 57).

         After receiving the up-front fee, the Defendants, in some instances, contacted the consumer's credit-card issuer and asked it to lower the consumer's interest rate. (Id. at ¶ 31). Some credit card issuers agreed to a modest interest rate reduction (while others did not), but the reduction rarely, if ever, resulted in a permanent or substantially lower interest rate and/or in savings to the consumer of thousands of dollars. (Id. at ¶¶ 32-34).

         In other instances, the Defendants tried to make good on their promises by obtaining a new credit card that had a low introductory, promotional interest rate and then directing the consumer to transfer the balance from their existing credit card to the new credit card. (Id. at ¶ 35). As part of this process, the consumer would often pay a one-to-three percent balance transfer fee - which the Defendants did not disclose prior to payment of the up-front fee - to move their existing credit card balance to the promotional credit card. (Id. at ¶¶ 6, 36-37). The reduced interest rate provided by the promotional credit cards likewise rarely, if ever, resulted in permanently lower interest rates and/or savings in the thousands of dollars. (Id. at ¶¶ 38-39). Instead, in most cases, the interest rates on the promotional credit cards increased significantly at the end of the promotional period. (Id. at ¶¶ 8, 38).

         In light of the foregoing, the FTC asserts that the Defendants' claims that they could permanently and substantially lower a consumer's credit card interest rate and save the consumer thousands of dollars were false and deceptive acts that violated Section 5(a) of the Federal Trade Commission Act (FTC Act), 15 U.S.C. § 45(a) (Counts I and II). (Id. at ¶¶ 40-41, 53-58). In addition, the FTC asserts that the Defendants' actions and omissions also violated the following provisions of Telemarketing Sales Rule (TSR), 16 C.F.R. Pt. 310: Count III - misrepresenting material aspects of debt relief services in violation of 16 C.F.R. § 310.3(a)(2)(x); Count IV - failing to disclose the total cost of debt relief services in violation of 16 C.F.R. § 310.3(a)(1)(i); Count V - charging or receiving a fee in advance of providing debt relief services in violation of 16 C.F.R. § 310.4(a)(5)(i); Count VI - calling consumers on the Do-Not-Call Registry in violation of 16 C.F.R. § 310.4(b)(1)(iii)(B); Count VII - initiating unlawful prerecorded messages in violation of 16 C.F.R. § 310.4(b)(1)(v)(A); and Count VIII - failing to pay fees for access to telephone numbers included on the Do-Not-Call Registry in violation of 16 C.F.R. § 310.8. (Id. at 15-17).[1] Based on the foregoing, the FTC requested the Court enter a preliminary injunction and appoint a receiver over the corporate defendants, [2] a permanent injunction prohibiting future violations of the FTC Act and TSR, an award of damages to redress the injuries suffered by the consumers, and costs for bringing the action. (Id. at 19).

         The FTC and Defendants Anderson, Brownell, Deese, Starr, Teel, Norris, and SFS (collectively, the Settling Defendants) reached a settlement of their claims, and FTC moved for the entry of an agreed upon Stipulated Order for Permanent Injunction and Monetary Judgment (the Stipulated Order). (Doc. 80). The Court granted the motion and entered the Stipulated Order on March 18, 2019. (Doc. 82). Thus, the only claims that remain outstanding in this case are those against HGM.

         The present motion by the FTC seeks to resolve those remaining claims. The Clerk entered default against HGM on March 27, 2018. (Doc. 71). The FTC now moves for default judgment against HGM seeking the entry of a multifaceted permanent injunction and award of damages totaling $3, 149, 920.34. (Doc. 84 (Motion for Default Judgment)). In support, the FTC has attached a proposed order for the Court's consideration, a declaration from Reeve Tyndall, an investigator with the FTC, and the depositions of Defendants Anderson, Brownell, Deese, Starr, and Teel. (Docs. 84-1; 84-2; 84-3; 84-4; 84-5; 84-6; 84-7). The receiver appointed by the Court to oversee HGM while this case is pending and HGM's sole manager, Defendant Anderson, do not oppose the relief sought in the Motion for Default Judgment. (Doc. 84 at 6). The matter is now ripe for review.

         II. Standard of Review

         The Federal Rules of Civil Procedure establish a two-step process for obtaining default judgment. First, when a party against whom a judgment for affirmative relief is sought fails to plead or otherwise defend as provided by the Federal Rules of Civil Procedure, and that fact is made to appear by affidavit or otherwise, the Clerk enters default. Fed.R.Civ.P. 55(a). Second, after obtaining clerk's default, the plaintiff must move for default judgment. Fed.R.Civ.P. 55(b). Before entering default judgment, the court must ensure that it has jurisdiction over the claims and parties, and that the well-pled factual allegations of the complaint, which are assumed to be true, adequately state a claim for which relief may be granted. See Nishimatsu Constr. Co. v. Houston Nat'l Bank, 515 F.2d 1200, 1206 (5th Cir. 1975).[3]

         A complaint must contain “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). This standard does not require detailed factual allegations, but does demand “more than an unadorned, the-defendant-unlawfully-harmed-me accusation.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). Thus, the “complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Id. (quoting Twombly, 550 U.S. at 570). To state a plausible claim for relief, a plaintiff must go beyond merely pleading the “sheer possibility” of unlawful activity by a defendant and offer “factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. (citing Twombly, 550 U.S. at 556). If a plaintiff fails to meet this pleading standard, then the plaintiff will not be entitled to default judgment.

         If the plaintiff is entitled to default judgment, then the court must consider whether the plaintiff is entitled to the relief requested. If the plaintiff seeks damages, the plaintiff bears the burden of demonstrating entitlement to recover the amount of damages sought in the motion for default judgment. Wallace v. The Kiwi Grp., Inc., 247 F.R.D. 679, 681 (M.D. Fla. 2008). Unlike well-pled allegations of fact, allegations relating to the amount of damages are not admitted by virtue of default; rather, the court must determine both the amount and character of damages. Id. (citing Miller v. Paradise of Port Richey, Inc., 75 F.Supp.2d 1342, 1346 (M.D. Fla. 1999)). Therefore, even in the default judgment context, “[a] court has an obligation to assure that there is a legitimate basis for any damage award it enters[.]” Anheuser Busch, Inc. v. Philpot, 317 F.3d 1264, 1266 (11th Cir. 2003); see Adolph Coors Co. v. Movement Against Racism and the Klan, 777 F.2d 1538, 1544 (11th Cir. 1985) (explaining that damages may be awarded on default judgment only if the record adequately reflects a basis for an award of damages). Ordinarily, unless a plaintiff's claim against a defaulting defendant is for a liquidated sum or one capable of mathematical calculation, the law requires the district court to hold an evidentiary hearing to fix the amount of damages. See Adolph Coors, 777 F.2d at 1543-44. However, no hearing is needed “when the district court already has a wealth of evidence from the party requesting the hearing, such that any additional evidence would be truly unnecessary to a fully informed determination of damages.” See S.E.C. v. Smyth, 420 F.3d 1225, 1232 n.13 (11th Cir. 2005); see also Wallace, 247 F.R.D. at 681 (“a hearing is not necessary if sufficient evidence is submitted to support the request for damages”).

         III. Analysis

         A. Subject Matter and Personal Jurisdiction

         The Court has subject matter jurisdiction over this action pursuant to 28 U.S.C. §§ 1331, 1337(a), and 1345, and personal jurisdiction over HGM, which is a Florida limited liability company with its principle place of business in Florida (Doc. 1 at ¶ 15).

         B. The Entry of Default

         HGM's registered agent was served with process on December 4, 2017. (Doc. 47); Fed.R.Civ.P. 4(h); Fla. Stat. § 48.081(3)(a). HGM had twenty-one days from the date of service to respond to the Complaint. Fed.R.Civ.P. 12(a)(1)(A)(i). HGM did not timely respond to the Complaint, and the FTC moved for and the Clerk properly entered default against HGM. (Docs. 68; 71).

         C. Liability

         1. Section 5(a) of the FTC ACT

         In Counts I and II of the Complaint, the FTC claims that HGM violated 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)(1). The FTC alleges that HGM engaged in a telemarketing scheme that defrauded financially distressed consumers throughout the United States by selling them bogus credit-card interest-rate-reduction services. (Doc. 1 at ¶¶ 4, 24-25). By its default, HGM has admitted to the foregoing well-pleaded factual allegations, which are sufficient to establish that HGM engaged in acts or practices in or affecting commerce.

         Next, to establish that HGM committed an act or engaged in a practice that violates Section 5(a) of the FTC Act, the FTC must establish that: 1) there was a representation; 2) the representation was likely to mislead consumers acting reasonably under the circumstances; and 3) the misrepresentation was material. FTC v. Tashman, 318 F.3d 1273, 1277 (11th Cir. 2003) (citations omitted). “A representation is material if it is of a kind usually relied upon by a reasonably prudent person.” FTC v. Transnet Wireless Corp., 506 F.Supp.2d 1247, 1266 (S.D. Fla. 2007) (citations omitted). In addition, expressly false claims or deliberately-made implied claims used to induce the purchase of a product or service are presumed to be material. FTC v. SlimAmerica, Inc., 77 F.Supp.2d 1263, 1272 (S.D. Fla. 1999) (citations omitted).

         Here, the FTC alleges that HGM represented to consumers that it could substantially and permanently reduce their credit card interest rates resulting in thousands of dollars in savings. (Doc. 1 at ¶¶ 5, 27-28, 53). In doing so, HGM also allegedly failed to disclose to consumers that its rate-reduction services may result in the consumer having to pay a variety of fees to the credit-card issuers, such as a balance transfer fee. (Id. at ¶¶ 6, 30, 57). These representations and omissions were likely to mislead consumers into purchasing HGM's services. Further, HGM's representations were false since, in most cases, consumers never received a substantially and permanently reduced interest rate that resulted in thousands of dollars in savings. (Id. at ¶¶ 32-34, 38-39, 54). Given the falsity of HGM's representations, they are presumed to be material. SlimAmerica, 77 F.Supp.2d at 1272. Moreover, HGM's failure to disclose the possibility that consumers may have to pay additional, undisclosed fees as a result of HGM's services is also material, since it is likely that if a reasonably prudent consumer was made aware of that possibility they would not have paid for HGM's services. By its default, HGM has admitted to these well-pleaded factual allegations, which are sufficient to establish that HGM's representations and omissions in connection with the sale of credit-card interest-rate-reduction services violated Section 5(a) of the FTC Act. The undersigned therefore finds that the FTC is entitled to default judgment on Counts I and II of the Complaint.

         2. The Telemarketing Sales Rule

         In Counts III through VIII of the Complaint, the FTC claims that HGM violated various provisions of the TSR. The undersigned will address each alleged violation in turn.

         a. 16 C.F.R. § 310.3

         In Counts III and IV of the Complaint, the FTC claims that HGM violated 16 C.F.R. § 310.3(a)(1)(i) and (a)(2)(x) (Id. at ΒΆΒΆ 72-75), ...


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