Federal Trade Commission v. Bay Area Business Council, Inc.

In the

United States Court of Appeals

For the Seventh Circuit

____________

No. 04-2173

FEDERAL TRADE COMMISSION,

Plaintiff-Appellee,

v.

BAY AREA BUSINESS COUNCIL, INC., a Florida

Corporation, BAY AREA BUSINESS COUNCIL CUSTOMER

SERVICE CORP., a Florida Corporation, AMERICAN

LEISURE CARD CORP., a Florida Corporation, et al.,

Defendants-Appellants.

____________

Appeal from the United States District Court

for the Northern District of Illinois, Eastern Division.

No. 02-C-5762—John W. Darrah, Judge.

____________

ARGUED MAY 6, 2005—DECIDED AUGUST 25, 2005

____________

Before KANNE, ROVNER, and WOOD, Circuit Judges.

ROVNER, Circuit Judge. In 2002 the Federal Trade Com-

mission (“FTC”) initiated an action for injunctive and other

equitable relief against several Florida corporations and

their officers and directors. See 15 U.S.C. §§ 53(a)-(b)

(giving FTC power to bring suit in district court and seek

preliminary injunction), 57b (authorizing FTC to bring suit

and seek equitable relief); 15 U.S.C. § 6101-08 (Tele-

marketing and Consumer Fraud and Abuse Prevention

Act). The FTC alleged that the following interrelated

corporations, run by Peter Porcelli, Bonnie Harris, and

2 No. 04-2173

Christopher Tomasulo, engaged in deceptive trade practices

in violation of section 5(a) of the Federal Trade Commission

Act (“FTC Act”), 15 U.S.C. § 45(a), and the Telemarketing

Sales Rule (“TSR”), 16 C.F.R. § 310.1-10.9: Bay Area

Business Council, Inc. (“BABC”); Bay Area Business

Council Customer Service Corp. (“BABC Customer Ser-

vice”); American Leisure Card Corp. (“American Leisure”);

Bay Memberships, Inc.; Bay Vacations, Inc.; and Sr.

Marketing Consultants, Inc. In particular, the FTC alleged

that the defendants misled consumers into believing that

they would receive a credit card in exchange for a hefty

“one-time” fee. The district court granted the FTC’s motion

for summary judgment against all of the corporate defen-

dants and Porcelli and Harris. The defendants appeal, and

we affirm.

I.

The FTC based its action on an alleged telemarketing

scheme run primarily out of Largo, Florida. Managing

BABC and later American Leisure, Porcelli contracted with

a telemarketing company in Utah1 to call consumers

throughout the United States who had recently applied

for and been denied consumer credit. Referring to those

credit applications, telemarketers opened by saying, “Our

records indicate that within the past 12 months, you filed

an application for a credit card and you are now eligible

to receive your MasterCard.” After answering a few short

“verification” questions, consumers were told that they were

“guaranteed to receive a MasterCard that does not require

1

Although not a named defendant in this case, the Utah

telemarketing company, Assail, Inc., was the subject of an FTC

action filed in the Western District of Texas. See FTC v. Assail,

Inc., 410 F.3d 256, 259 n.1 (5th Cir. 2005) (describing tele-

marketing “scheme” selling worthless “MasterCards”).

No. 04-2173 3

a security deposit with an initial pay as you go limit of

$2000.”

In addition to the “MasterCard,” consumers were prom-

ised a “fabulous” Florida vacation and a free 30-day trial

“BABC membership.” These offers, however, did not figure

prominently in the script, which focused on the

“MasterCard.” The card was offered as a way to boost

flagging credit ratings, as demonstrated by the following

scripted promise: “[N]othing [customer name] looks better

on your Equifax credit report than a MasterCard.”

This supposed opportunity, however, came at a cost.

Telemarketers explained that “like most cards there is

a one time processing [fee] of $174.95 plus shipping and

handling, which covers the cost of processing the Master-

Card order and getting the vacation package delivered to

you on a priority basis.” In order to pay the fee, consumers

were required to provide personal account information.

After obtaining an account number and securing agreement

from the consumer, telemarketers played an automated

“disclosure” concluding with, “you agree to everything we

spoke about over the phone today, Correct?” Within days of

the call, BABC and American Leisure debited customer

accounts for anywhere from $199 (including “shipping and

handling”) to $499.

Some time later, customers received the “MasterCard”

and accompanying package from BABC or American

Leisure. Instead of a credit card, the package contained an

“acceptance form” for a “ChexCard™ MasterCard®.” The

card stated “Bay Area Business Council” prominently across

the top and contained a copy of the MasterCard logo in the

lower right-hand corner. The back contained a meaningless

painted-on black stripe in place of the customary magnetic

strip on credit and debit cards. The explanatory material

revealed that the card was a “stored value card” that the

customer could receive only after mailing in a $15 activa-

4 No. 04-2173

tion fee. After the actual card arrived (four to six weeks

later), it could only be used if a customer pre-loaded his or

her own funds onto it.

In addition to the inoperable “ChexCard,” customers

received information on redeeming their free vacation (a

time share presentation) and on their BABC “membership.”

The “membership” supposedly entitled consumers to take

advantage of numerous “free” goods and services, such as

gasoline, nationwide long distance, internet access, voice

mail, and film developing. Although this was not mentioned

in the materials, the privilege of BABC membership cost

the consumer $10 a month. The only notice of the fee was

contained in the automated “disclosure” played in the initial

sales call, where it was revealed that the $10 would be

taken directly from the consumer’s account each month.

Not surprisingly, BABC received a host of complaints

from customers who thought they had been going to receive

a credit card. Incorporated separately but doing business

under the name Bay Area Business Council, BABC Cus-

tomer Service handled customer’s complaints and requests

for refunds. Special Technologies, Inc. essentially succeeded

BABC Customer Service in July 2002. Both operated from

a suite in Largo next to the offices of Porcelli and Harris.

That suite received all calls placed to the toll free numbers

for BABC, American Leisure, Sr. Marketing Consultants,

and Bay Memberships, Inc. In addition to calls from

disgruntled consumers, corporate records reveal that

between November 2001 and July 2002, BABC received

over 900 written consumer complaints forwarded from the

Better Business Bureau, state attorney generals’ offices,

and private lawyers.

The remaining corporate defendants also worked in

conjunction with BABC. Like BABC Customer Service, Sr.

Marketing Consultants, Inc. did business under BABC’s

name. Sr. Marketing Consultants, however, had only

No. 04-2173 5

four employees, three of whom were related to Porcelli.

They operated from Porcelli’s mother-in-law’s home in

Dunedin, Florida. Sr. Marketing Consultants charged

BABC and American Leisure for the “ChexCards,” and

then, through a series of transactions, gave the proceeds

to Harris, who handled most of BABC’s finances. At the end

of July 2002, Porcelli created Bay Memberships, Inc. as a

way to ensure that banks, which had begun refusing to

process payments to BABC and American Leisure, would

continue to charge customers. In the three weeks that Bay

Memberships, Inc. operated, it processed approximately

$200,000 in debits from customer accounts. Although it is

not entirely clear from the record, Bay Vacations, Inc. was

apparently another shell corporation doing business for

BABC.

In August 2002, the FTC filed its action alleging that

BABC, Inc., BABC Customer Service, American Leisure,

Porcelli, Tomasulo, and Harris violated Section 5(a) of the

FTC Act, 15 U.S.C. § 45(a), and multiple provisions of the

TSR by engaging in deceptive trade practices. The FTC

later amended its complaint to name Bay Memberships,

Inc., Bay Vacations, Inc., and Sr. Marketing Consultants,

Inc. as defendants (collectively the “corporate defendants”).

The FTC also secured an ex parte temporary restraining

order with an accompanying freeze on the defendants’

assets. On August 15, 2002, a temporary receiver, accompa-

nied by FTC employees, entered the corporate defendants’

premises in Largo, Florida to seize business records and

shut down operations pursuant to the restraining order.

After conducting extensive discovery, the FTC moved for

summary judgment against the corporate defendants,

Porcelli, and Harris.2 With its motion the FTC filed the

2

The district court later approved a stipulated settlement

(continued...)

6 No. 04-2173

required Northern District of Illinois Local Rule 56.1(a)(3)

statement of undisputed material facts. In response to the

FTC’s motion, the defendants filed a document averring

that an attached affidavit sworn by Porcelli contested “the

vast majority of all facts listed as undisputed by the FTC.”

The defendants also submitted affidavits from three former

BABC employees and one former BABC Customer Service

employee. The affidavits made the following three asser-

tions: (1) that most BABC consumers who called asked

about their vacation package, not about a credit card, (2)

that BABC had a consumer refund policy, and (3) that

Porcelli was in Canada from May 2002 until shortly after

BABC was shut down by the FTC in August. The district

court concluded that the defendants’ response failed to

comply with Local Rule 56.1. It thus accepted as true all the

facts in the FTC’s Rule 56.1 statement.

On that record, the court granted the FTC’s motion for

summary judgment. The court concluded that the undis-

puted facts established that the defendants had violated

section 5 of the FTC Act by misleading reasonable consum-

ers into believing they would receive a credit card. See 15

U.S.C. § 45(a) (forbidding deceptive practices affecting

commerce). This deception, the court concluded, also

violated 16 C.F.R. § 310.3(a)(2)(iii) (prohibiting misrepre-

sentations about any material aspect of a sales offer) and

§ 310.3(a)(4) (forbidding misleading statements to induce

payment for goods). And the court determined that the

defendants violated 16 C.F.R. § 310.3(a)(1)(i) by failing to

tell consumers about the extra $15 fee required to obtain

the “ChexCard,” id. (requiring clear and conspicuous

2

(...continued)

agreement between the FTC and the sole remaining defendant,

Christopher Tomasulo. The agreement contemplates Tomasulo’s

adherence to a permanent injunction that mirrors the one

ultimately entered against the other defendants.

No. 04-2173 7

disclosure of all costs associated with goods offered for sale).

Finally, the district court concluded that Porcelli and Harris

were individually liable for the corporate defendants’

deceptive practices because both had authority to control

the corporate defendants and knew about their deceptive

practices. The court then entered an order permanently

enjoining the defendants from telemarketing, promoting or

selling credit-related products, making misleading state-

ments to consumers, failing to comply with the TSR, or

disclosing any information about customers except to the

FTC. The court also held the corporate defendants, Harris,

and Porcelli jointly and severally liable for $12.5 million in

consumer redress. See 15 U.S.C. § 57b(b) (giving court

jurisdiction to authorize consumer redress for a corpora-

tion’s deceptive trade practices).

II.

The defendants’ primary argument on appeal concerns

the district court’s enforcement of Northern District of

Illinois Local Rule 56.1. That rule requires parties mov-

ing for summary judgment to submit with their motion

“a statement of material facts as to which the moving party

contends there is no genuine issue and that entitle the

moving party to a judgment as a matter of law.” N.D. Ill. R.

56.1(a)(3). The statement must be organized by numbered

paragraphs and refer to the “affidavits, parts of the record,

and other supporting materials” that substantiate the listed

facts. The party opposing summary judgment must then

submit a response to each numbered paragraph, “including,

in the case of any disagreement, specific references to the

affidavits, parts of the record, and other supporting materi-

als relied upon.” Id. 56.1(b)(3)(A). The reply must also

contain numbered paragraphs with “any additional facts

that require the denial of summary judgment,” supported

by citations to the record. Id. 56.1(b)(3)(B). Finally, the rule

8 No. 04-2173

provides that “[a]ll material facts set forth in the statement

required of the moving party will be deemed to be admitted

unless controverted by the statement of the opposing party.”

Concluding that the defendants’ affidavits did not comply

with the strictures of the rule, the district court disregarded

them. The defendants, however, maintain that the district

court should have considered Porcelli’s thirty-three page

affidavit, which they believe complied with Rule 56.1. They

characterize the statements in Porcelli’s affidavit as

“admissible evidence” and insist that he responded to the

undisputed facts listed by the FTC. We review the district

court’s enforcement of the local rules for an abuse of

discretion. E.g., Ammons v. Aramark Uniform Servs., Inc.,

368 F.3d 809, 817 (7th Cir. 2004). Because of the important

function local rules like Rule 56.1 serve in organizing the

evidence and identifying disputed facts, we have consis-

tently upheld the district court’s discretion to require strict

compliance with those rules. See Koszola v. Bd. of Educ.,

385 F.3d 1104, 1109 (7th Cir. 2004); Ammons, 368 F.3d at

817; Bordelon v. Chi. School Reform Bd. of Trustees, 233

F.3d 524, 527 (7th Cir. 2000); Waldridge v. Am. Hoechst

Corp., 24 F.3d 918, 922 (7th Cir. 1994) (collecting cases).

We are hard-pressed to see how Porcelli’s affidavit

could constitute compliance with Rule 56.1. The defendants

insist that Porcelli’s affidavit “specifically addressed in

corresponding paragraph numbers” the facts in the FTC’s

Rule 56.1 statement. This is untrue. By way of example, the

eighth paragraph in the FTC’s Rule 56.1 statement asserts

that American Leisure did business as “First American

Leisure Card” or “1st American Leisure Card.” In the

“corresponding” paragraph of his affidavit, Porcelli claims

to “deny, to [his] knowledge” that sales representatives led

consumers to believe that they would receive credit cards

for an advance fee. And paragraph twelve of the FTC’s Rule

56.1 statement says that BABC and American Leisure

entered into contracts with a company in St. George, Utah

No. 04-2173 9

to telemarket for them. Paragraph twelve of Porcelli’s

affidavit, however, makes the unrelated claim that “BABC

and [American Leisure] telemarketing scripts . . . included

language regarding a vacation package.” As demonstrated

by the preceding examples, Porcelli’s affidavit in no way

constitutes “a concise response . . . to each numbered

paragraph” in the FTC’s statement. Indeed, many portions

bear no relationship at all to the facts set forth by the FTC.

Moreover, with the exception of a sole reference to the

defendants’ answer to the FTC’s amended complaint,

Porcelli’s affidavit fails to cite a single piece of record

evidence to support its assertions. See Bradley v. Work, 154

F.3d 704, 708 (7th Cir. 1998) (“act of specifically correlating

evidence in the record to factual propositions” is “key” to

system prescribed by local rules such as 56.1). In short,

Porcelli’s affidavit utterly fails to conform with the require-

ments of Rule 56.1, and the district court had no obligation

to construe it as compliant. We have noted before that rules

like 56.1 “provide[ ] the only acceptable means of disputing

the other party’s facts and of presenting additional facts to

the district court.” Midwest Imports, Ltd. v. Coval, 71 F.3d

1311, 1317 (7th Cir. 1995). Instead of employing those

means, the defendants chose to submit Porcelli’s affidavit

and the affidavits of four of his former employees. Having

reviewed the affidavits, we concur in the district court’s

judgment that they consist of “unsupported and irrelevant”

conclusions. The court was thus well within its discretion to

reject the defendants’ submissions. See Ammons, 368 F.3d

at 817-18 (no abuse of discretion for court to strike re-

sponses that “simply denied an allegation and provided no

citation whatsoever”); Bordelon, 233 F.3d at 528-29 (uphold-

ing district court’s decision to strike statement “full of

argument, evasion, and improper denials”).

We also reject the defendants’ related argument that

the district court “overlooked” evidence giving rise to dis-

puted issues of material fact. To uncover this evidence, the

10 No. 04-2173

defendants suggest the district court should have harked

back to affidavits submitted with their answer to the FTC’s

amended complaint and their motion in opposition to the

preliminary injunction. But local rules such as 56.1 exist

precisely because the district court is not “obliged . . . to

scour the record looking for factual disputes.” Waldridge, 24

F.3d at 922. Moreover, the affidavits are unhelpful because

many of the statements in them were subsequently discred-

ited by deposition testimony and other evidence uncovered

in discovery. See, e.g., Ineichen v. Ameritech, 410 F.3d 956,

963 (7th Cir. 2005) (reiterating rule that a party may not

create an issue of fact with an affidavit containing conclu-

sions that contradict depositions or other sworn testimony);

Balderston v. Fairbanks Morse Engine Div. of Coltec Indus.,

328 F.3d 309, 318-19 (7th Cir. 2003) (same).

III.

Accordingly, in our de novo review of the court’s grant of

summary judgment, we consider only those facts in the

FTC’s Rule 56.1 statement, which is amply supported by

citations to the relevant record evidence. Although we

accept as true the facts in the FTC’s Rule 56.1 statement,

we still view them in the light most favorable to the

defendants in determining whether there exist disputed

issues of material fact. See Fed. R. Civ. P. 56(c); Anderson

v. Liberty Lobby Inc., 477 U.S. 242, 255 (1986); Laborers’

Pension Fund v. RES Env’t Servs., Inc., 377 F.3d 735, 737

(7th Cir. 2004). Although the defendants aver generally

that there are disputed issues of fact that make summary

judgment improper, nothing they point to undercuts the

FTC’s undisputed evidence that they engaged in unfair

trade practices, see 15 U.S.C. § 45(a), and violated multiple

provisions of the TSR, see 16 C.F.R. § 310.1-10.9.

Section 5 of the FTC Act prohibits “unfair or deceptive

acts or practices in or affecting commerce.” 15 U.S.C.

No. 04-2173 11

§ 45(a)(1). The FTC is empowered to initiate federal court

actions to enforce violations of section 5 and seek appropri-

ate equitable relief. Id. §§ 53(a)-(b), 57b. The FTC may

establish corporate liability under section 5 with evidence

that a corporation made material representations likely to

mislead a reasonable consumer. See FTC v. Tashman, 318

F.3d 1273, 1277 (11th Cir. 2003); FTC v. World Travel

Vacation Brokers, Inc., 861 F.2d 1020, 1029 (7th Cir. 1988).

The FTC is not, however, required to prove intent to

deceive. FTC v. Freecom Communications, Inc., 401 F.3d

1192, 1202 (10th Cir. 2005); FTC v. Amy Travel Serv., Inc.,

875 F.2d 564, 573 (7th Cir. 1989); World Travel, 861 F.2d at

1029. Additionally, the omission of a material fact, without

an affirmative misrepresentation, may give rise to an FTC

Act violation. Amy Travel, 875 F.2d at 573; World Travel,

861 F.2d at 1029. The corporate defendants do not dispute

the district court’s conclusion that they operated as a

“common enterprise” such that they are jointly and sever-

ally liable for the injuries caused by their violations of the

FTC Act and the TSR. We thus consider them collectively

when analyzing corporate liability.

Throughout their brief, the defendants maintain that they

never sold a credit card. They characterize this issue as a

material fact in dispute. The FTC, however, does not

dispute that the defendants did not actually sell credit

cards. Indeed, their failure to provide a “credit card” lies at

the heart of this case. We take the defendants at their word

that they never sold a credit card. Unfortunately, they

misled consumers into believing that was exactly what they

were doing. See Freecom Communications, 401 F.3d at 1202

(in analyzing whether act or practice is deceptive, principal

inquiry is the practice’s likely effect on mind of ordinary

consumer).

One look at the scripts used by telemarketers for BABC

and American Leisure confirms that the corporate defen-

dants misled reasonable consumers into believing they

12 No. 04-2173

would receive a credit card. The script opens by referring to

the consumer’s recent application for “a credit card.” The

potential customer is then told, “you are now eligible to

receive your MasterCard.” It is hard to imagine what

consumer would not construe this as an offer for a credit

card. Indeed, the entire script is tailored to giving consum-

ers that impression. From calling the card a “MasterCard”

to promising that nothing would look better on an Equifax

credit report, telemarketers gave consumers the impression

that they were going to receive a credit card in the mail.

Instead, they received a useless card with a MasterCard

logo. From that, a consumer could mail additional funds to

receive a functional “ChexCard,” which could only be used

when the consumer pre-loaded it with her or her own funds.

We think it safe to say that no reasonable consumer would

pay close to $200 for the opportunity to order this

“ChexCard.” Any doubt that consumers were misled is

dispelled by the number of consumer complaints. BABC

Customer Service records reveal that in the two-month

window from June to August 2002, over 200 consumers

called to complain that they thought they would be getting

a credit card. Accordingly, the corporate defendants violated

section 5 of the FTC Act. See FTC v. World Media Brokers,

No. 04-2721, slip op. at 7 (7th Cir. July 27, 2005).

The evidence also establishes multiple violations of the

TSR, 16 C.F.R. § 310.1-10.9, the FTC’s Trade Regulation

promulgated to implement the Telemarketing and Con-

sumer Fraud and Abuse Prevention Act, 15 U.S.C. § 6101-

6108. The FTC alleged that the defendants violated three

provisions of the TSR, which we consider in turn.

Section 310.3(a)(1)(i) requires telemarketers to clearly

and conspicuously disclose “[t]he total costs to purchase,

receive, or use . . . any goods and services” offered for sale.

16 C.F.R. § 310.3(a)(1)(i). Although telemarketers assured

consumers that the “MasterCard” had a “one time” fee of

$174.95 plus shipping and handling, that was not the case.

No. 04-2173 13

After a consumer’s checking account was debited anywhere

from $199 up to $399, he or she received the BABC “mem-

bership” materials in the mail. Those materials contained

the useless “ChexCard™ MasterCard®” with an accompa-

nying form explaining that it was not a credit card. In order

to use the “stored value card” consumers then had to mail

an additional, previously undisclosed $15 in certified funds

to “SMC Bank Card Offer” (presumably Sr. Marketing

Consultants, the four-employee operation run from

Porcelli’s mother-in-law’s home). By failing to provide

advance warning of the additional $15 fee, the corporate

defendants violated § 310.3(a)(1)(i).

Likewise, the defendants violated § 310.3(a)(2)(iii), which

prohibits telemarketers from misrepresenting any material

aspect of the performance of the goods or services offered for

sale. As our discussion regarding section 5 of the FTC Act

makes clear, the corporate defendants misled consumers

into believing that they would receive a credit card. We

need not linger on the obvious point that the lack of any

available credit on the “MasterCard” qualifies as a material

aspect of its performance subject to disclosure. Cf. World

Media, slip op. at 7-8 (defendants’ failure to disclose

illegality of sales offer violated related provision of TSR

requiring disclosure of all material restrictions on goods

or services).

Finally, the defendants violated § 310.3(a)(4) by leading

consumers to believe that the substantial fee charged would

be used to secure a credit card on their behalf. Subsection

(a)(4) forbids telemarketers from making a false or mislead-

ing statement to induce payment for goods or services. 16

C.F.R. § 310.3(a)(4); see also World Media, slip op. at 8. In

addition to suggesting that consumers would receive a

credit card, the telemarketers falsely assured consumers

that the card would boost their credit ratings. Despite the

promise that “nothing” looked better on an “Equifax credit

report than a MasterCard,” use of the pay-as-you go

14 No. 04-2173

“Mastercard” was not reported to credit reporting bureaus

like Equifax. No doubt this false promise induced consum-

ers, targeted for their poor credit histories, into paying for

the supposed “MasterCard.”

That leaves Porcelli and Harris. Upon establishing corpo-

rate liability, the FTC must demonstrate that the individ-

ual defendants either participated directly in the deceptive

acts or practices or had authority to control them. World

Media, slip op. at 8; Amy Travel, 875 F.2d at 573; see also

Freecom Communications, 401 F.3d at 1204; FTC v. Publ’g

Clearing House, Inc., 104 F.3d 1168, 1170 (9th Cir. 1997).

Additionally, the FTC is obligated to show that the individ-

ual defendants either knew or should have known about the

deceptive practices. World Media, slip op. at 8; Amy Travel,

875 F.2d at 573-74. It is not, however, required to prove

subjective intent to defraud. Amy Travel, 875 F.2d at 573-

74. Instead, the FTC may fulfill the knowledge requirement

with evidence that the individuals had “actual knowledge of

material misrepresentations, reckless indifference to the

truth or falsity of such misrepresentations, or an awareness

of a high probability of fraud along with an intentional

avoidance of the truth.” Id. at 574 (citation and internal

quotations omitted).

We begin with Porcelli. On appeal Porcelli never directly

takes issue with the district court’s conclusion that he

should be held individually liable for the corporate mis-

representations. Instead, he makes a passing reference to

a former BABC’s employee’s affidavit to the effect that

Porcelli was in Canada from May 2002 until after BABC

was closed in August 2002. Even if we were to consider the

affidavit, it does not create a genuine issue over whether

Porcelli had the requisite authority and knowledge to be

individually liable. Porcelli is the owner and chief executive

officer of every corporate defendant except Bay Vacations,

Inc. Acting in that role he made countless decisions that

demonstrate his authority to control the corporate defen-

No. 04-2173 15

dants. See World Media, slip op. at 9 (service as director,

president, and secretary of multiple corporations demon-

strated defendant’s authority to control); Amy Travel, 875

F.2d at 573 (authority to control may be demonstrated by

active participation in the corporate affairs, including

assuming duties as a corporate officer). For example, he

controlled decisions such as who would perform

telemarketing for BABC and American Leisure Corp. He

also created Bay Memberships, Inc. to secure continued

payments from banks becoming suspicious of BABC. As the

mastermind behind the entire scheme, there is no question

that Porcelli had authority to control the defendant corpora-

tions. See Amy Travel, 875 F.2d at 574-75.

Nor does Porcelli’s stay in Canada diminish the evidence

that he knew about the corporations’ deceptive practices. He

testified in his deposition that while in Canada he received

regular e-mails that kept him apprised of the corporate

affairs. Indeed, it was from Canada that Porcelli wrote the

following e-mail revealing his plan to keep forming new

corporate entities to staunch the flow of consumer com-

plaints: “[W]hen it is at the inquiry stage, where we have a

few unhappy people, but no epidemic[,] we switch to the

new company[.] . . . [T]he turndown of complaints will make

[American Leisure Corp.] disappear from the radar screen

to pursue.” Then when the newly formed company “start[s]

to build up the sales and coml\plaints [sic] . . . we keep the

complaints down and set up a successor even quicker in

another state, so that the temperature never gets high.” Not

surprisingly, Porcelli makes no attempt to explain the e-

mail, which goes far toward establishing his knowledge of

the corporations’ deceptive practices. See id. at 574-75

(knowledge shown in part by “high volume of consumer

complaints”). In addition to knowing about the number of

consumer complaints, Porcelli received a letter from the

state of Montana instructing him to cease telemarketing

there because the scripts misled consumers into believing

16 No. 04-2173

they would receive a credit card. This letter, as well as a

suit by the state of North Carolina (resulting in a ban on

sales to North Carolina), more than adequately alerted him

to the corporations’ deceptive trade practices. See World

Media, slip op. at 9-10.

Harris, for her part, claims that there is a genuine issue

of material fact over whether she was “a salaried employee

or an officer with authority to control.” To support her

claim, she points to her affidavit in the district court stating

that she is not an “owner or stockholder” in any of the

corporations and makes a salary of $1250 a week.

In addition to being evidence that the district court properly

disregarded, her assertion is irrelevant. Harris cites no

authority, nor are we aware of any, to the effect that

receiving a weekly salary is somehow inconsistent with

having corporate control or knowledge of corporate affairs.

The record establishes that Harris handled the corporate

finances for American Leisure, and also transferred funds

to pay expenses for BABC, BABC Customer Service, and

Special Technologies. She also had signing authority on the

corporate accounts for BABC, BABC Customer Service,

American Leisure, Sr. Marketing Consultants, Inc., and

Bay Memberships, Inc. and was authorized to use Porcelli’s

signature stamp. Thus, Harris had ample authority to

control the corporate defendants. See Publ’g Clearing

House, 104 F.3d at 1170.

And like Porcelli, she was aware of the near-constant

stream of complaints from customers who thought they

would receive a credit card in exchange for their payment.

She also knew that banks were refusing to debit customer

accounts for payments to BABC and American Leisure.

In October 2001, she sent the telemarketing company an e-

mail saying, “We have been deluged with check returns

from our bank this week.” To claim ignorance in the face of

the consumer complaints and returned checks amounts to,

at the least, reckless indifference to the corporations’

No. 04-2173 17

deceptive practices. See Amy Travel, 875 F.2d at 574-75.

Finally, nowhere do Porcelli and Harris suggest that the

corporations’ deceptive practices did not harm consumers.

The FTC submitted declarations from multiple consumers

who purchased the defendants’ package, only to learn later

that it did not contain a credit card. These consumers

also attempted unsuccessfully to receive a refund for the

money debited from their accounts. Thus, the FTC has

established consumer injury, the final requirement for

individual liability under the FTC Act. See Freecom Com-

munications, 401 F.3d at 1205-06; Amy Travel, 875 F.2d at

573.

IV.

For the foregoing reasons, we AFFIRM the district court’s

grant of summary judgment in favor of the FTC.

18 No. 04-2173

A true Copy:

Teste:

________________________________

Clerk of the United States Court of

Appeals for the Seventh Circuit

USCA-02-C-0072—8-25-05