Nos. 23-3310, 24-1273 and 24-1289
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Case: 23-3310
Document: 34
Filed: 07/09/2024
Pages: 102
Nos. 23-3310, 24-1273 and 24-1289
IN THE UNITED STATES COURT OF APPEALS
FOR THE SEVENTH CIRCUIT
–––––––––––––––––––––––––––––––––––––––––––––
FEDERAL TRADE COMMISSION,
Plaintiff-Appellee,
v.
DAY PACER LLC, et al.,
Defendant-Appellant,
and
MARGARET E. CUMMING, in her
capacity as personal representative of
the Estate of David T. Cumming,
Defendant-Appellant.
–––––––––––––––––––––––––––––––––––––––––––––
On Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division
No. 1:19-cv-01984
Hon. Lindsay C. Jenkins, Judge
–––––––––––––––––––––––––––––––––––––––––––––
BRIEF OF THE FEDERAL TRADE COMMISSION
–––––––––––––––––––––––––––––––––––––––––––––
ANISHA S. DASGUPTA
General Counsel
MARIEL GOETZ
Acting Deputy General
Counsel for Litigation
Of Counsel:
MARK S. HEGEDUS
MARK GLASSMAN
MATTHEW M. HOFFMAN
PATRICK ROY
Attorney
Attorneys
FEDERAL TRADE COMMISSION
600 Pennsylvania Avenue, N.W.
FEDERAL TRADE COMMISSION
Washington, D.C. 20580
Washington, D.C. 20580
(202) 326-2115
mhegedus@ftc.gov
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TABLE OF CONTENTS
TABLE OF AUTHORITIES..................................................................... iv
GLOSSARY ............................................................................................... x
INTRODUCTION...................................................................................... 1
JURISDICTION ........................................................................................ 2
QUESTIONS PRESENTED ..................................................................... 3
STATEMENT OF THE CASE .................................................................. 4
A. Statutory and Regulatory Background .............................................. 4
B. Factual Background............................................................................ 7
1. Day Pacer’s Unlawful Calls to Consumers on the DoNot-Call Registry .......................................................................... 8
2. Individual Defendants’ Role in Day Pacer ................................. 10
3. Defendants’ Knowledge of TSR Violations................................. 12
C. Proceedings Below ............................................................................ 15
1. Summary Judgment on Liability ............................................... 16
2. Substitution ................................................................................ 19
3. Permanent Injunction................................................................. 20
4. Civil Penalties............................................................................. 21
SUMMARY OF ARGUMENT ................................................................. 23
ARGUMENT ........................................................................................... 26
I.
The District Court Properly Granted Summary
Judgment Holding All Defendants Liable for the TSR
Violations and for Civil Penalties..................................................... 26
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A. Standard of Review.................................................................... 27
B. Undisputed Evidence Shows That Day Pacer Is a
Telemarketer That Violated the TSR By Calling
Numbers on the Do-Not Call-Registry. ..................................... 28
C. Defendants Failed to Meet Their Burden To
Establish Express Written Agreement. .................................... 32
D. Undisputed Evidence Shows That Day Pacer Had
the Requisite Knowledge Necessary To Support
Penalties. ................................................................................... 37
E. Undisputed Evidence Shows That the Individual
Defendants Are Liable for Day Pacer’s Violations.................... 42
II. The Scope of the Permanent Injunction Is Within the
Scope of the District Court’s Discretion. .......................................... 48
A. Standard of Review.................................................................... 48
B. The Injunction Is Not Overbroad. ............................................. 49
III. The District Court Properly Awarded Civil Penalties. .................... 54
A. Standard of Review.................................................................... 56
B. The Court Did Not Abuse Its Discretion By
Awarding a Civil Penalty Equal to Gross Revenue. ................. 56
C. The District Court Properly Held All Defendants
Jointly and Severally Liable...................................................... 61
D. Defendants Have Not Shown Any Abuse of
Discretion With Respect to the Statutory Factors.................... 64
1.
2.
3.
4.
Defendants were highly culpable. ...................................... 65
Defendants have a long history of misconduct................... 69
Defendants have not shown the penalty exceeds
their collective ability to pay. ............................................. 70
Day Pacer is no longer in business..................................... 71
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5.
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The need for general and specific deterrence
supports the penalty. .......................................................... 72
E. The Award Does Not Exceed the Relief the FTC
Requested................................................................................... 73
F.
If the Court Finds an Abuse of Discretion, the
Proper Course Is To Remand .................................................... 73
IV. The District Court Properly Substituted the Estate for
Cumming........................................................................................... 75
A. Standard of Review.................................................................... 76
B. The District Court Properly Applied the Three-Part
Test For Determining Whether an Action is Penal or
Remedial for Substitution Purposes. ........................................ 76
1.
2.
3.
FTC actions to enforce the TSR protect
individual consumers from harm. ...................................... 77
Recovery by the government is not
determinative...................................................................... 84
The civil penalty here is not wholly
disproportionate to the harm caused by millions
of unwanted calls. ............................................................... 86
C. Equity, If Relevant, Supports Substitution. ............................. 88
CONCLUSION ........................................................................................ 90
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TABLE OF AUTHORITIES
CASES
AMG Capital Mgmt., LLC v. FTC,
593 U.S. 67 (2021)................................................................................61
Anderson v. Liberty Lobby, Inc.,
477 U.S. 242 (1986)........................................................................ 27, 28
Beaudry v. Telecheck Servs., Inc.,
2016 WL 11398115 (M.D. Tenn. Sept. 29, 2016).................................82
Brook, Weiner, Sered, Kreger & Weinberg v.
Coreq, Inc.,
53 F.3d 851 (7th Cir. 1995)..................................................................67
Brown v. Plata,
563 U.S. 493 (2011)..............................................................................48
Celotex Corp. v. Catrett,
477 U.S. 317 (1986)..............................................................................27
Citronelle-Mobile Gathering, Inc. v. O’Leary,
499 F. Supp. 871 (D. Ala. 1980)...........................................................85
Cooper-Shut v. Visteon Auto. Sys.,
361 F.3d 421 (7th Cir. 2004).............................................. 28, 40, 44, 68
E. Natural Gas Corp. v. ALCOA,
126 F.3d 996 (7th Cir. 1994)................................................................64
Edward E. Gillen Co. v. City of Lake Forest,
3 F.3d 192 (7th Cir. 1993)....................................................................68
Friends of the Earth, Inc. v. Laidlaw Env’t. Servs.
(TOC), Inc., 528 U.S. 167 (2000).................................................... 78, 84
FTC v. Amy Travel Serv., Inc.,
875 F.2d 564 (7th Cir. 1989)................................................................44
FTC v. Capital City Mortg. Corp.,
321 F. Supp. 2d 16 (D.D.C. 2004) ................................ 75, 81, 84, 85, 86
FTC v. Colgate-Palmolive Co.,
380 U.S. 374 (1965).................................................................. 49, 52, 53
iv
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FTC v. Credit Bureau Ctr., LLC,
937 F.3d 764 (7th Cir. 2019).......................................................... 27, 43
FTC v. Grant Connect, LLC,
763 F.3d 1094 (9th Cir. 2014) ..............................................................27
FTC v. INC21.com Corp.,
745 F. Supp. 2d 975 (N.D. Cal. 2010) ..................................................52
FTC v. John Beck Amazing Profits LLC,
888 F. Supp. 2d 1006 (C.D. Cal. 2012) .......................................... 50, 53
FTC v. Life Mgmt. Servs. of Orange Cty., LLC,
350 F. Supp.v 3d 1246 (M.D. Fla. 2018) ..............................................50
FTC v. Pointbreak Media, LLC,
376 F. Supp. 3d 1257 (S.D. Fla. 2019) .................................................51
FTC v. Pukke,
53 F.4th 80 (4th Cir. 2022) ..................................................................50
FTC v. QT, Inc.,
512 F.3d 858 (7th Cir. 2008)................................................................62
FTC v. Think Achievement Corp,
144 F. Supp. 2d (N.D. Ind. 2000).........................................................50
Golan v. Veritas Ent., LLC,
788 F.3d 814 (8th Cir. 2015).......................................................... 30, 32
Hannabury v. Hilton Grand Vacations Co.,
174 F. Supp. 3d 768 (W.D.N.Y. 2016)..................................................84
Hulce v. Zipongo, Inc.,
2024 WL 1251108 (E.D. Wis. Mar. 18, 2024) ......................................31
In re Sanctuary Belize Litig.,
482 F. Supp. 3d 373 (D. Md. 2020) ......................................................50
Irvin-Jones v. Equifax Info. Servs. LLC,
2019 WL 4394684 (S.D. Tex. Sept. 13, 2019) ......................................82
Kempner Mobile Elecs., Inc. v. Sw. Bell Mobile
Sys.,
428 F.3d 706 (7th Cir. 2005)................................................................76
Krueger v. Cuomo,
115 F.3d 487 (7th Cir. 1997)................................................................72
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Malvino v. Delluniversita,
840 F.3d 223 (5th Cir. 2016)................................................................83
McKinnon v. City of Berwyn,
750 F.2d 1383 (7th Cir. 1984) ..............................................................62
Michas v. Health Cost Controls of Ill., Inc.,
209 F.3d 687 (7th Cir. 2000)................................................................68
Murphy v. Household Fin. Corp.,
560 F.2d 206 (6th Cir. 1977).......................................................... 81, 83
Nat’l R.R. Passenger Corp. v. Morgan,
536 U.S. 101 (2002)..............................................................................69
Parchman v. SLM Corp.,
896 F.3d 728 (6th Cir. 2018).......................59, 75, 78, 79, 83, 84, 87, 88
Patriotic Veterans, Inc. v. Zoeller,
845 F.3d 303 (7th Cir. 2017)................................................................58
R&W Tech. Servs. Ltd. v. CFTC,
205 F.3d 165 (5th Cir. 2000)................................................................60
Russell v. City of Milwaukee,
338 F.3d 662 (2003)..............................................................................76
Schreiber v. Sharpless,
110 U.S. 76 (1884)................................................................................19
SEC v. Jarkesy,
No. 22-859 (S. Ct. June 27, 2024), .......................................................81
SEC v. Williky,
942 F.3d 389 (7th Cir. 2019)................................................................56
SEC v. Yang,
795 F.3d 675 (7th Cir. 2015)................................................................49
Smith v. Lamz,
321 F.3d 680 (7th Cir. 2003)................................................................68
Smith v. No. 2 Galesburg Crown Fin. Corp.,
615 F.2d 407 (7th Cir. 1980).................................. 19, 75, 76, 80, 82, 83
Toney v. Quality Res., Inc.,
75 F. Supp. 3d 727 (N.D. Ill. 2014) ......................................................35
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Trujillo v. Free Energy Savings Co.,
2020 WL 7768722 (C.D. Cal. Dec. 21, 2020) .......................................32
United States v. Cornerstone Wealth Corp.,
549 F. Supp. 2d 811 (N.D. Tex. 2008)............................................ 70, 71
United States v. Daniel Chapter One,
89 F. Supp. 3d 132 (D.D.C. 2015) ........................................................70
United States v. Danube Carpet Mills, Inc.,
737 F.2d 988 (11th Cir. 1984) ........................................................ 70, 84
United States v. Dish Network LLC,
2015 WL 9164539 (C.D. Ill. 2015) .......................................................62
United States v. Dish Network LLC,
256 F. Supp. 3d 810 (C.D. Ill. 2017) .................................. 67, 71, 81, 82
United States v. Dish Network LLC,
954 F.3d 970 (7th Cir. 2020).............................................. 37, 39, 40, 57
United States v. Edwards,
667 F. Supp. 1204 (W.D. Tenn. 1987)..................................................85
United States v. Nat. Fin. Servs., Inc.,
98 F.3d 131 (4th Cir. 1996)..................................................................37
United States v. NEC Corp.,
11 F.3d 136 (11th Cir. 1993)................................................................83
United States v. Z Inv. Props., LLC,
921 F.3d 696 (7th Cir. 2019)................................................................56
Vargas-Harrison v. Racine Unified School Dist.,
272 F.3d 964 (7th Cir. 2001)................................................................27
STATUTES
7 U.S.C. § 9 ..............................................................................................60
15 U.S.C. § 45 ........... 2, 4, 16, 17, 21, 26, 37, 54, 57, 60, 61, 77, 78, 86, 87
15 U.S.C. § 53 ...................................................................... 2, 4, 16, 61, 77
15 U.S.C. § 57b ........................................................................................78
15 U.S.C. § 6101 ................................................................................ 58, 79
15 U.S.C. § 6102 ........................................................................................4
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15 U.S.C. § 6105 ........................................................................................4
15 U.S.C. § 6151 ........................................................................................5
15 U.S.C. § 6153 ........................................................................................6
15 U.S.C. § 77t.........................................................................................63
28 U.S.C. § 1291 ........................................................................................3
28 U.S.C. § 1292 ........................................................................................3
28 U.S.C. § 1331 ........................................................................................2
28 U.S.C. § 1337 ........................................................................................2
28 U.S.C. § 1345 ........................................................................................2
28 U.S.C. § 1355 ........................................................................................2
47 U.S.C. § 227 .................................................................................... 6, 78
755 Ill. Comp. Stat. § 5/18.......................................................................71
RULES AND REGULATIONS
16 C.F.R. § 310.2 ..................................................................... 4, 29, 30, 38
16 C.F.R. § 310.3 ................................................................................. 5, 16
16 C.F.R. § 310.4 ............................................................... 5, 15, 17, 29, 32
16 C.F.R. § 310.8 .......................................................................................9
16 C.F.R. Pt. 310 .......................................................................................2
47 C.F.R. § 64.1200 ............................................................................. 6, 38
60 Fed. Reg. 43,842 .................................................................................31
Fed. R. Civ. P. 25 .....................................................................................75
Fed. R. Civ. P. 56 ............................................................................... 27, 28
N.D. Ill. R. 56.1..........................................................................................7
OTHER AUTHORITIES
149 Cong. Rec. S11957-01,
2003 WL 22217295..............................................................................80
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In re R&R Implementing the Tel. Consumer
Protect Act of 1991, Report and Order,
7 F.C.C. Rcd. 8752 (1992) ....................................................................35
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GLOSSARY
CSA
College Search Advisor
Day Pacer
EduTrek, LLC and Day Pacer, LLC
Day Pacer Defendants
EduTrek, LLC, Day Pacer, LLC, Ian
Fitzgerald, Raymond Fitzgerald
Defendants
EduTrek, LLC, Day Pacer, LLC, David
Cumming, Ian Fitzgerald, Raymond
Fitzgerald
DNC
Do Not Call
Estate
Estate of David Cumming
ECOA
Equal Credit Opportunity Act
Fitzgeralds
Ian Fitzgerald, Raymond Fitzgerald
FTC
Federal Trade Commission
Individual Defendants
David Cumming, Ian Fitzgerald, Raymond
Fitzgerald
Registry
Do-Not-Call Registry
TCPA
Telephone Consumer Protection Act
Telemarketing Act
Telemarketing Consumer Fraud and Abuse
Prevention Act
TILA
Truth in Lending Act
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INTRODUCTION
The defendants in this case engaged in illegal telemarketing
practices for over a decade by calling or facilitating calls to telephone
numbers on the National Do-Not-Call Registry as part of a campaign to
generate leads that they sold to for-profit schools. More than 40 million
consumers received these harassing and unwanted calls. The Federal
Trade Commission sued, seeking an injunction to halt unlawful
telemarketing practices going forward and civil penalties for past
violations. The district court granted summary judgment for the FTC as
to all defendants, entered a permanent injunction, and held all
defendants jointly and severally liable for $28.7 million in penalties
($6.88 per illegal call placed by or transferred to the defendant
companies). Because Defendant David Cumming died during the
litigation, the district court substituted his estate as a defendant; the
estate is subject to the penalties but not the injunction.
Defendants Raymond Fitzgerald, Ian Fitzgerald, EduTrek LLC
and Day Pacer LLC (the “Day Pacer Defendants”) appeal the grant of
summary judgment, the scope of the injunction, and the amount of civil
penalties. The Cumming estate (“Estate”) appeals the substitution
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order and the penalties. None of Appellants’ arguments has merit. The
district court properly found no genuine dispute of fact that Defendants
were engaged in “telemarketing” under the FTC’s Telemarketing Sales
Rule (“TSR”), 16 C.F.R. Pt. 310, and that they violated the rule by
placing or facilitating the placement of calls to numbers on the Do-NotCall Registry. Defendants’ legal arguments misread the TSR, and their
conclusory affidavits, supported by little to no record evidence, do not
create a genuine issue of material fact sufficient to overcome the FTC’s
overwhelming evidentiary showing that all Defendants are liable for
TSR violations. Nor did the district court abuse its discretion either in
issuing the permanent injunction or assessing penalties, or err in
substituting the Estate for Cumming following his death. This Court
should affirm.
JURISDICTION
Appellants’ jurisdictional statements are not complete. The FTC
asserted claims for relief under 15 U.S.C. §§ 45(m)(1)(a) and 53(b) based
on Defendants’ TSR violations. The district court had jurisdiction under
28 U.S.C. §§ 1331, 1337(a), 1345, and 1355(a). The district court entered
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a permanent injunction on November 21, 2023, A65, 1 which the Day
Pacer Defendants timely appealed on November 29, 2023. The district
court’s final judgment was entered on January 23, 2024. A89. The Day
Pacer Defendants timely appealed on February 20, 2024, and the Estate
timely appealed on the same date. This Court has jurisdiction under 28
U.S.C. §§ 1291 and 1292(a)(1).
QUESTIONS PRESENTED
1.
Whether the district court correctly granted summary
judgment of liability in favor of the FTC as to each of the Defendants.
2.
Whether the district court properly enjoined the Day Pacer
Defendants from telemarketing.
3.
Whether the district court properly imposed and calculated
civil penalties.
4.
Whether the district court correctly substituted the Estate
for Cumming as a defendant following Cumming’s death.
1 Because all of the district court’s opinions and orders included in the
Estate’s appendix are also in the Day Pacer appendix, “A#” citations are
to the Day Pacer appendix.
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STATEMENT OF THE CASE
A.
Statutory and Regulatory Background
The FTC issued the TSR pursuant to the Telemarketing
Consumer Fraud and Abuse Prevention Act of 1994 (“Telemarketing
Act”), which directed the FTC to prescribe rules prohibiting deceptive or
abusive telemarketing acts and practices. 15 U.S.C. § 6102(a)(1). Under
the TSR, “telemarketing” includes any “plan, program, or campaign
which is conducted to induce the purchase of goods or services … by use
of one or more telephones and which involves more than one interstate
telephone call.” 16 C.F.R. § 310.2(hh). Congress directed the FTC to
enforce the TSR under the FTC Act, which generally prohibits unfair or
deceptive acts or practices and provides several different means of
enforcement, including injunctions and civil penalties. 15 U.S.C.
§ 6105(b); see also id. §§ 45(a)(1), (m), 53(b). In particular, any person
who violates the TSR “shall be subject to the penalties … provided in
the [FTC] Act.” Id. § 6105(b).
In 2003, in response to widespread concerns about the
proliferation of unwanted telemarketing calls and the attendant
invasion of personal privacy, the FTC amended the TSR to establish a
National Do-Not-Call Registry, and Congress expressly ratified that
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decision. See 15 U.S.C. § 6151. The Registry contains phone numbers
belonging to individuals who do not want to receive telemarketing calls.
As amended, the TSR provides in relevant part that “[i]t is an abusive
telemarketing act or practice and a violation of this part for a
telemarketer to engage in … [i]nitiating any outbound call to a person
when … [t]hat person’s telephone number is on the ‘do-not-call’ registry
maintained by the Commission, of persons who do not wish to receive
outbound telephone calls to induce the purchase of goods or services.…”
16 C.F.R. § 310.4(b)(1)(iii)(B). There are only two exceptions: if the
telemarketer can demonstrate either that (1) the seller on whose behalf
the telemarketer calls received express agreement for such call, in
writing and signed, from the call recipient, or (2) the seller has an
established business relationship with the call recipient. Id. The TSR
also makes it unlawful for any person to “provide substantial assistance
or support” to a telemarketer if the person knows or consciously avoided
knowing that the telemarketer is engaged in certain misconduct,
including do-not-call violations. Id. § 310.3(b).
In addition to the TSR, telemarketing calls to numbers on the DoNot-Call Registry are prohibited by regulations issued by the Federal
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Communication Commission under the Telephone Consumer Protection
Act (“TCPA”), 47 U.S.C. § 227. Congress directed the FCC to “consult
and coordinate with the [FTC]” when promulgating the do-not-call
provisions of TCPA rules to “maximize consistency” with the do-not-call
provisions of the TSR. 15 U.S.C. § 6153. While the TCPA rule uses
slightly different language than the TSR, the substantive prohibitions
are essentially the same. The TCPA rule generally prohibits
“initiat[ing] any telephone solicitation to … [a] residential telephone
subscriber who has registered his or her telephone number on the
national do-not-call registry of persons who do not wish to receive
telephone solicitations that is maintained by the Federal Government.”
47 C.F.R. § 64.1200(c)(2). 2 A “telephone solicitation” means “the
initiation of a telephone call or message for the purpose of encouraging
the purchase or rental of, or investment in, property, goods, or services,
which is transmitted to any person.” Id. § 64.1200(f)(15). Accordingly, a
“telephone solicitation” under the TCPA rule is generally
“telemarketing” under the TSR.
2 As in the TSR, there are affirmative defenses if the caller can
establish either express written agreement by or a personal relationship
with the call recipient. 47 C.F.R. § 64.1200(c)(2)(ii), (iii).
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Factual Background
The facts of this case are largely uncontroverted. As required by
the district court’s local rules, N.D. Ill. R. 56.1(a)(2), (d), the FTC
submitted a statement of material facts in support of its motion for
summary judgment with citations to supporting record evidence that
identified millions of calls to the Registry, demonstrated lack of consent,
and comprised Defendants’ contemporaneous statements and sworn
admissions. D.212. The district court held that the Defendant’s
responses (D.229; D.232) did not comply with the local rule because
they “include multiple numbered paragraphs that purport to dispute
the FTC’s facts, but do not actually dispute the contents of the
paragraph, do not provide citations to the record, and/or do not
‘concisely explain how the cited material controverts the asserted fact.’”
A7 n.1 (quoting N.D. Ill. R. 56.1(e)(3)). The court thus held that “[w]here
Defendants dispute the FTC’s facts but fail to cite the record evidence or
explain how it controverts the asserted fact, the FTC’s facts are deemed
admitted.” Id. The following summary is based on the undisputed facts.
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Day Pacer’s Unlawful Calls to Consumers on the DoNot-Call Registry
Defendants EduTrek and Day Pacer were both in the business of
generating “leads” that they sold to for-profit schools marketing their
services to prospective students. D.212 at 6-7. Defendants Raymond
Fitzgerald and David Cumming formed EduTrek in 2010, and they
involved Ian Fitzgerald in various capacities. D.212 at 3-4. Following
negative publicity and scrutiny of EduTrek’s practices, D.212 at 36-38,
they formed Day Pacer and transitioned EduTrek’s business to the new
company in late 2015, operating out of the same office with many of the
same employees. D.212 at 40-44. For convenience, we refer to both
companies collectively as “Day Pacer” and the Fitzgeralds and
Cumming as the “Individual Defendants.”
Day Pacer purchased consumer phone numbers from the operators
of websites offering information about job opportunities and public
benefits. D. 212 at 5-9. Consumers who entered their names on these
websites did not consent to receiving telemarketing calls from Day
Pacer or its partners, but were called anyway. D.212 at 11-13. Day
Pacer operated a 100-200 seat call center where “college search
advisors” (“CSAs”) cold called consumers to market for-profit schools.
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D.212 at 5-6. If a consumer expressed an interest, Day Pacer passed
along their name and number to for-profit schools as potential “leads.”
D.212 at 4-6.
Day Pacer also contracted with various telemarketing companies,
known as “in-bound transfer partners” or “IBT Partners,” to make
additional phone calls and transfer the calls to Day Pacer where the
IBT Partner determined that the consumer was potentially eligible for
enrollment in post-secondary education. D.212 at 14. Day Pacer paid
the IBT Partners, gave them phone numbers to call, reviewed their
telemarketing scripts, and provided other guidance and direction to
increase the number of transfers. D.212 at 14-15, 18-19.
Telemarketers may subscribe to the Do-Not-Call Registry to
determine whether numbers they intend to call are listed on the
Registry. See 16 C.F.R. § 310.8. Day Pacer, however, never subscribed
to the Registry, never “scrubbed” its call lists to remove numbers listed
on the Registry, and understood that its IBT Partners also did not scrub
call lists for numbers on the Registry. D.212 at 10, 20.
Not surprisingly, a huge number of these calls were placed to
numbers on the Do-Not-Call Registry. From March 2014 to June 2019,
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25% of the calls initiated by Day Pacer, or 3,669,914 calls, were made to
numbers on the Registry. D.229 at 17-18; D.232 at 11-12. Another
498,597 calls to numbers on the Registry were made by IBT Partners
and transferred to Day Pacer, D.229 at 27-28; D.232 at 20-21. Some
39,847,000 such calls were made by IBT Partners and never
transferred, D.212 at 17. There is no evidence that either Day Pacer or
the IBT Partners obtained express written agreement for these calls.
D.212 at 46-47.
2.
Individual Defendants’ Role in Day Pacer
All three Individual Defendants have had substantial ownership
and financial interests and/or significant managerial responsibilities in
Day Pacer over the years. D.212 at 29-33. All three actively participated
in the companies’ operations, including discussing their business model,
marketing tactics, and business opportunities. D.212 at 27-28, 31. They
also collaborated in responding to complaints, lawsuits, and threatened
lawsuits for Do-Not-Call violations. D.212 at 22-23, 36.
Briefly, Raymond Fitzgerald owns (or owned) a primary interest
in Day Pacer through his company, The Dalsnan Family LLC
(“Dalsnan”). D.212 at 3. He also is (or was) a managing member,
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manager, and registered agent of Day Pacer. Id. Prior to his death,
Cumming also owned a substantial interest in Day Pacer and was also
a corporate manager. D.212 at 4. As corporate managers, Raymond and
Cumming had authority, and were required, to oversee Day Pacer.
D.212 at 31-32; D.212-3 at 8-10 [SA007-09]; D.212-4 at 10-12 [SA06264]. They also regularly loaned money to the companies (and at one
point “foreclosed” on a loan to EduTrek), D.212 at 33, and owned
(through another LLC) the building where Day Pacer rented office
space, D.212 at 29, 40.
In 2010, Raymond made Ian Fitzgerald president of Dalsnan, and
in that capacity Ian was responsible for watching over Raymond’s and
Cumming’s investment interests in EduTrek and Day Pacer. D.212 at
30. Ian told vendors he had been involved with the companies since
2009. D.212 at 4. Ian eventually became director of human resources for
EduTrek and later for Day Pacer before becoming Day’s Pacer’s
president starting June 1, 2016. D.212 at 30. As president, he oversaw
Day Pacer’s day-to-day operations, including hiring and firing
employees, signing contracts, responding to compliance issues, and
engaging in business development. Id. Further, he was responsible for
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the company’s profitability and had access to its bank accounts and
accounting records. Id. Ian also had an ownership interest in Day Pacer
after the business was transitioned from EduTrek. D.212 at 4.
3.
Defendants’ Knowledge of TSR Violations
All Defendants had knowledge of TSR requirements. As early as
2011, Day Pacer’s contracts required compliance with the TSR. D.212 at
14, 38-39. In 2014, the company revised its existing agreement with IBT
Partners to “comply with … the [FTC’s] Telemarketing Sales Rule” and
prohibited IBT Partners from “call[ing] any individuals whose numbers
appear on a federal or state Do Not Call (‘DNC’) list, unless it meets a
valid exemption.” D.212 at 38-89; D.212-3 at 42 [SA039]. Day Pacer also
required that its IBT Partners “maintain written policies for complying
with DNC requirements and training call center personnel on use of
those policies.” D.212-3 at 42-43 [SA039-40].
Day Pacer maintained a “Do-Not-Call Policy” that purported to
comply with federal and state regulations governing the national and
Day Pacer’s internal Do-Not-Call registries. D.212-4 at 91 [SA093]. The
Policy directed CSAs to place a consumer’s telephone number on Day
Pacer’s internal Do-Not-List upon request. D.212 at 10-11; D.212-4 at
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91 [SA093]. Nevertheless, Day Pacer also instructed CSAs to overcome
the “objections” of consumers who told Defendants they were not
interested in speaking about educational opportunities and were
displeased about being called. D.212 at 11.
All three Individual Defendants were familiar with the TCPA, the
TSR and the Do-Not-Call Registry. D.212 at 14, 29, 34, 38-39; D.235 at
4. Raymond boasted about his expertise with telecommunications and
telemarketing law due to his representation of Day Pacer in cases
involving the Do-Not-Call Registry and the TCPA. D.212 at 38. In early
2016, Cumming sent Raymond and Ian an email that included a link to
the TSR itself, and he advised them to review it. D.212 at 34; D.212-6 at
95 [SA100]. Later that year, he sent Raymond and Ian an email
analyzing the TSR and TCPA after Raymond emailed Cumming about a
consumer complaining about having been contacted by the one of the
IBT Partners. D.212 at 35. In his correspondence, Cumming repeatedly
referred to TSR requirements, including the potential for civil penalties
if those requirements were violated. Id.; D.212-6 at 97 [SA102]. In 2015,
Ian admonished: “We need to make sure our system is not calling DNC
numbers ever.” D.212-6 at 108 [SA109]. He also communicated with
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Raymond and Cumming, as well as other company employees, about
whether Day Pacer should “invest” in a telemarketing permit. D.212 at
34-35.
Defendants were also aware of the need for consent to call a
number on the Do-Not-Call Registry. For example, Cumming explicitly
raised with the Fitzgeralds what he called the issue of “conditional
consent,” in which he asked, “[b]y opting in on a site advertising at
home business opportunities, is the opter consenting to a call about
further education?” D.212 at 34; D.212-6 at 100 [SA105]. He then
stated, “it is unfortunate that we have the potential conditional consent
issue but oh, well … .” Id. Ian stated that, even before he started
working at Day Pacer, he “understood TCPA compliance to mean that
there had to be a – an opt-in box … ,” and further he understood details
about that requirement. D.235 at 3-4.
Day Pacer also received complaints that it was initiating calls to
phone numbers on the Do-Not-Call Registry. D.212 at 11-12, and did
not have proper express written authorization to call the numbers,
D.212 at 13. Despite these concerns, Day Pacer continued to purchase
consumer data from the same websites. Id.
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All three Individual Defendants were aware of and involved in
responding to complaints and multiple lawsuits regarding possible
violations of the TSR and the TCPA, with Raymond and Cumming
providing legal advice. D.212 at 36. They also knew that Day Pacer did
not subscribe to the Do-Not-Call Registry. Id. Additionally, Raymond
and Cumming were also both familiar with a 2014 Huffington Post
article about EduTrek that described (1) how the company obtained
consumer information from jobs and benefits websites using fine print
disclosures and (2) examples of calls to consumers who had not
consented. D.212 at 37; D.212-3 at 88-95 [SA045-52]. The article noted
that EduTrek “may well be in violation of federal statutes prohibiting
deceptive marketing and unwanted telephone calls” and that “schools
sometimes expressed concern that the reps not violate FTC’s Do-NotCall Rules.” D.212-3 at 88, 91[SA045, SA048].
C.
Proceedings Below
The FTC filed this action in March 2019. Count I of the Complaint
alleged that the Defendants violated the TSR by initiating or causing
others to initiate telemarketing calls to phone numbers on the Do-NotCall Registry. See 16 C.F.R. § 310.4(b)(1)(iii)(B). Count II alleged that
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Defendants violated the TSR by providing substantial assistance to IBT
Partners even though Defendants knew or consciously avoided knowing
that those telemarketers were calling numbers on the Do-No-Call
Registry in violation of the TSR. Id. §310.3(b). The FTC sought
permanent injunctive relief, see 15 U.S.C. § 53(b), and civil penalties,
see id. § 45(m)(1).
1.
Summary Judgment on Liability
Following discovery, the parties cross-moved for summary
judgment. The district court largely granted the FTC’s motion and
denied Defendants’ motions, holding that all Defendants were liable on
both counts of the Complaint and that an award of civil penalties was
proper.3 We discuss only those parts of the opinion that are relevant to
this appeal.
At the outset, the court noted that there was no dispute that Day
Pacer made at least 3,669,914 calls to numbers on the Do-Not-Call
Registry. A33. It rejected Defendants’ argument that Day Pacer was not
3 The district court granted summary judgment for Defendants on
Count I insofar as it alleged that Defendants were liable for calls made
by IBT Partners on an agency theory. A49. That ruling is not at issue
here.
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a “telemarketer” because it did not make sales pitches or offers on calls,
explaining that the TSR definition of telemarketing does not require
that a direct sale or sales offer be made. A34-35. It held that Day Pacer
engaged in telemarketing, and hence was subject to the TSR, because
there was no dispute that it placed calls as “part of a plan between
multiple businesses [Day Pacer and the schools] to connect consumers
to various for-profit programs.” A35-36. Additionally, the court held
that Defendants had produced no evidence that any call recipients had
provided the express written agreement necessary to avoid a finding of
liability. A41-46; 16 C.F.R. § 310.4(b)(1)(iii)(B)(1).
The court held that Day Pacer satisfied the standard required for
assessment of civil penalties: “actual knowledge or knowledge fairly
implied on the basis of objective circumstances” that its conduct was
unfair or deceptive and prohibited by the TSR. A47; 15 U.S.C.
§ 45(m)(1)(A). It rejected Defendants’ argument that Day Pacer did not
know or have reason to know that the TSR applied to its business,
focusing on party admissions and objective circumstances showing that
no reasonable company in Day Pacer’s position could have concluded
that its activities were outside the TSR’s scope. A38-41. It further held
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that based on the undisputed evidence, Day Pacer had “at a minimum
… knowledge fairly implied under the circumstances that there were
not valid written consents for at least a portion of the numbers they
purchased and dialed.” A46.
The court next held that Day Pacer also violated the TSR by
paying the IBT Partners to make calls in violation of the do-not-call
rule. The court held that this conduct amounted to substantial
assistance and that undisputed evidence showed Day Pacer “knew or
consciously avoided knowing that at least one of its IBT Partners was
violating the TSR.” A50. The court found it “unnecessary to determine
whether [Day Pacer] substantially assisted with each and every one of
the IBT Partners” because the FTC was not seeking penalties for the
roughly 40 million untransferred calls made by the IBT Partners or
injunctive relief concerning the IBT Partners directly. A51. For
purposes of liability, substantially assisting one IBT Partner was
enough. A51-52.
Finally, the court held that the Individual Defendants were liable
for both injunctive relief and civil penalties because undisputed
evidence showed that all three of them (1) directly participated in the
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companies’ TSR violations or had authority to control them, and (2)
knew or should have known about the violations. A52-56.
2.
Substitution
Shortly after summary judgment briefing concluded, Cumming
died. D.244.The FTC filed a motion to substitute the personal
representative of his estate as a defendant. D.247. The court granted
the motion. It applied federal common law, under which “remedial”
claims survive a defendant’s death, while actions on “penal” statutes do
not. See Schreiber v. Sharpless, 110 U.S. 76, 80 (1884). The court noted,
however, that “it is not always easy to tell if a statutory claim is
remedial or penal” and that just because the FTC sought civil penalties,
that did not necessarily make the action penal for substitution
purposes. A13-14. Surveying the relevant case law and applying the
three-factor test articulated by this Court in Smith v. No. 2 Galesburg
Crown Financial Corp., 615 F.2d 407, 414 (7th Cir. 1980), the court
determined that an FTC action to enforce the TSR is primarily
remedial, rather than penal, even where the FTC seeks civil penalties.
A13-21. The court also rejected the Estate’s argument that it would be
inequitable to order substitution because Day Pacer supposedly lost
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money, the money in the Estate did not result from ill-gotten gains, and
Cumming’s heirs had nothing to do with the TSR violations. A22-23.
Rather, the court concluded that it would be inequitable to allow the
Estate to avoid any liability while leaving the Fitzgeralds responsible
for the full civil penalty amount. A23.
3.
Permanent Injunction
In its summary judgment opinion, the court said that it was
“inclined to issue injunctive relief against” Day Pacer and the
Fitzgeralds “for the same reasons that the Fitzgeralds are properly held
responsible for the acts of” the company. A58. The court indicated that
it would not order injunctive relief against the Estate, because the
Estate had no ongoing involvement in the conduct of Day Pacer’s
business. Id. Because of the amount of time that had elapsed since the
case was filed, however, the court ordered the parties to submit updated
information about the proper scope of injunctive relief. Id. After
receiving and reviewing those submissions, the court entered an
injunction that “permanently restrain[s] and enjoin[s]” the Fitzgeralds
and Day Pacer “from participating in Telemarketing or assisting others
engaged in Telemarketing, whether directly or through an
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intermediary.” A68. The injunction defines “Telemarketing as “any
plan, program, or campaign which is conducted to induce the purchase
of goods or services by use of one or more telephones, and which
involves a telephone call, whether or not covered by the [TSR].” Id.4
4.
Civil Penalties
The FTC Act provides for penalties to be assessed on a perviolation basis and sets a statutory cap that is adjusted for inflation.
See 15 U.S.C. § 45(m)(1)(A); 28 U.S.C. § 2864 note. Although the
maximum civil penalty authorized for Defendants’ violations would
have exceeded $100 billion, the Act does not permit automatic
assessment of the maximum. Rather, the district court must “take into
account the degree of culpability, any history of prior such conduct,
ability to pay, effect on ability to continue to do business, and such
other matters as justice requires.” 15 U.S.C. § 45(m)(1)(C). In its
summary judgment papers, the FTC analyzed these factors and
recommended a total penalty of $28,681,863.88, corresponding to Day
Pacer’s revenue from the misconduct, and working out to $6.88 per call
4 The district court later partially stayed the Injunction insofar as it
bars telemarketing to businesses pending this appeal. A81.
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for each of the 4,168,511 unlawful calls placed by or transferred to Day
Pacer. The court stated that it was inclined to impose this penalty but
deferred a final ruling, ordering further proceedings to receive updated
information, including whether Day Pacer was still in business and
information about Defendants’ ability to pay and the effect of any
penalty on their business. A61.
Following supplemental briefing by the Estate and a response by
the FTC, A87-88, the court held all Defendants jointly and severally
liable for the amount the FTC had requested. A89. The court held this
penalty was reasonably connected to the required factors—“basically,
given the scope of Defendants’ TSR violations, their knowledge of those
violations, and the high culpability of trying to mask those violations,
all revenue from those calls should be forfeited.” A87. It held that a
penalty of $6.88 per unlawful call fell “well within the range for the
difficult-to-quantify harm from TSR violations.” A87-88. The court
rejected the Estate’s various arguments, ruling that several were
simply an effort to relitigate issues decided on summary judgment and
the remainder lacked merit. A86-87.
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SUMMARY OF ARGUMENT
1. The district court correctly granted summary judgment on
liability. The undisputed facts establish that Day Pacer was engaged in
telemarketing and that it violated the TSR by calling consumers whose
numbers were listed on the Do-Not-Call Registry without proper
consent. Defendants’ assertion that the TSR does not apply unless an
offer to sell is made on the call is contrary to the plain text of the rule.
Day Pacer’s calls were telemarketing because they were part of a plan,
program or campaign to induce the purchase of educational services. To
avoid liability, Defendants had to show that consumers expressly
agreed to receive calls in a signed writing. They produced no evidence of
such written agreements.
The undisputed facts showed that Day Pacer had actual
knowledge or knowledge fairly implied on the basis of objective facts
that its conduct violated the TSR, as required for the imposition of civil
penalties. Defendants’ documents show they knew about the TSR, and
they admitted that they knew they were subject to nearly identical
restrictions in the TCPA. Contrary to Defendants’ argument, the
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district court did not make credibility determinations. Instead, it held
that the objective evidence fairly implied a showing of knowledge.
Undisputed facts also showed that all three Individual Defendants
are liable for Day Pacer’s TSR violations. Individual Defendants had
authority to control the violations based on their management positions
with the company and responsibilities for its operations. They also
participated in the violations, including by directing the activities of
IBT Partners and failing to take steps necessary to prevent calls to
numbers on the Do-Not-Call Registry. And the Individual Defendants
had knowledge from several sources about the TSR violations, including
the absence of valid consent to call consumers.
2. Having found liability, the district court did not abuse its
discretion in entering a permanent injunction banning Day Pacer and
the Fitzgeralds from all telemarketing, whether or not covered by the
TSR. It is well settled that an injunction under the FTC Act should not
be limited to prohibiting the precise conduct for which defendants are
liable; those violating the Act are subject to “fencing in” relief to ensure
they do not engage in similar misconduct. Given Defendants’ blatant
disregard for the TSR’s requirements and the ease with which
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telemarketing operations can be transferred to new products or
services, a broad ban was appropriate here.
3. The district court did not abuse its discretion in awarding civil
penalties. Do-Not-Call violations cause harm to consumers that is very
real (e.g., invasion of privacy, lost time) but hard to quantify.
Accordingly, the district court properly calculated penalties based on
Defendants’ gross revenues, taking into consideration the mandatory
factors specified in the FTC Act, including Defendants’ culpability and
the need for deterrence. The $28 million penalty works out to $6.88 per
illegal call, which the court properly found was not disproportionate to
the harm. And because the Defendants were all involved in running
EduTrek and Day Pacer, which were a common enterprise, and they all
knew of the TSR violations, the court properly imposed joint and several
liability, rather than assessing each Defendant’s penalty individually.
The penalty should be affirmed, but if the Court finds an abuse of
discretion, it should remand rather than accept the Estate’s
unsupported and unreasonable alternative penalty calculations.
4. The district court properly substituted the Estate for Cumming
after his death. Substitution is appropriate where the purpose of an
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action is primarily remedial, not penal, and the mere fact that a
plaintiff seeks civil penalties is not enough to make an action “penal” for
substitution purposes. A wealth of case law demonstrates that actions
seeking penalties for violations of consumer protection statutes that
protect individuals from harm, like the Telemarketing Act, are properly
treated as remedial for substitution purposes, regardless of whether the
plaintiff is the government or a private party.
ARGUMENT
I.
THE DISTRICT COURT PROPERLY GRANTED SUMMARY JUDGMENT
HOLDING ALL DEFENDANTS LIABLE FOR THE TSR VIOLATIONS
AND FOR CIVIL PENALTIES.
The undisputed evidence presented by the FTC shows that Day
Pacer is a telemarketer that violated the TSR both by calling consumers
whose numbers were on the Do-Not-Call Registry and by substantially
assisting IBT Partners in making such telemarketing calls. The
undisputed evidence also shows that Defendants acted with either
“actual knowledge or knowledge fairly implied on the basis of objective
circumstances” that its conduct was unfair or deceptive and is
prohibited by the TSR, as required for an award of civil penalties. 15
U.S.C. § 45(m)(1). Finally, the undisputed evidence shows that the
Individual Defendants are liable because they either participated in or
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had authority to control the violations and they knew or should have
known about the violations. See FTC v. Credit Bureau Ctr., LLC, 937
F.3d 764, 769 (7th Cir. 2019). 5 Defendants’ attacks on the district
court’s summary judgment ruling are meritless. 6
A.
Standard of Review.
This Court reviews a district court’s grant of summary judgment
de novo. Vargas-Harrison v. Racine Unified School Dist., 272 F.3d 964,
970 (7th Cir. 2001). The judgment must be affirmed if there is “no
genuine dispute as to any material fact and [the FTC] is entitled to
judgment as a matter of law.” Fed. R. Civ. P. 56(a); see Celotex Corp. v.
Catrett, 477 U.S. 317, 323 (1986). A genuine issue of material fact exists
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). That party must go beyond the pleadings and “set forth
specific facts showing that there is a genuine issue [of fact] for trial.” Id.
5 Some courts have held that a showing of knowledge is not required
where the FTC does not seek monetary relief. See FTC v. Grant
Connect, LLC, 763 F.3d 1094, 1101-02 (9th Cir. 2014).
6 The Estate adopts the arguments in much of the Day Pacer
Defendants’ brief. Estate Br.44. When addressing those, we cite to the
Day Pacer brief (“DP Br.) only, except where cites to the Estate’s brief
(“Estate Br.”) are needed.
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at 250. Affidavits on which the party relies must “be made on personal
knowledge” and “set out facts that would be admissible in evidence.”
Fed. R. Civ. P. 56(c)(4). “[C]onclusory statements, unsupported by
evidence of record, are insufficient to avoid summary judgment.”
Cooper-Shut v. Visteon Auto. Sys., 361 F.3d 421, 429 (7th Cir. 2004).
Evidentiary issues addressed in the summary judgment decision are
reviewed for abuse of discretion. Id.
B.
Undisputed Evidence Shows That Day Pacer Is a
Telemarketer That Violated the TSR By Calling
Numbers on the Do-Not Call-Registry.
The district court properly held that “the undisputed facts show
that [Day Pacer] engaged in telemarketing as defined by the TSR.” A36.
It is undisputed that Defendants’ “business model was designed to
generate consumer leads in order to sell them” to for-profit schools that
“used those leads in an effort to enroll people in their programs.” A35.
Cumming, for example, described the purpose of Day Pacer’s call
centers as selling leads. D.230-1 at 4 [SA143]. The companies described
themselves as offering educational marketing services. D.229 at 11-14;
D.232 at 6-8. Defendants identify no evidence disputing the district
court’s conclusion that Day Pacer’s “entire business model depended on
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being a marketing partner as part of a plan between multiple
businesses to connect consumers to various for-profit programs.” A36.
In other words, Day Pacer was making telephone calls as part of a
“plan, program, or campaign” to induce the purchase of educational
services. That is “telemarketing,” see 16 C.F.R. § 310.2(hh), which
makes Day Pacer a “telemarketer” within the meaning of the TSR. See
id. § 310.2(gg) (“telemarketer” means “any person who, in connection
with telemarketing, initiates or receives telephone calls to or from a
customer.”). It follows that the Day Pacer violated the TSR by calling
numbers on the Do-Not-Call Registry, which it does not dispute doing.
See 16 C.F.R. § 310.4(b)(1)(iii)(B); D.229 at 17-19; D.232 at 11-12.7
Defendants’ argument that there is a genuine dispute of fact as to
whether Day Pacer’s business model was subject to the TSR (DP Br.1516) fails for three reasons. First, Defendants mistakenly read the TSR
to apply only if an actual offer to sell goods or services is made on the
call to consumers. According to the Defendants, because Day Pacer’s
calls involved trying to identify consumers interested in educational
7 By the same reasoning, the IBT Partners are also “telemarketers,”
and their calls to numbers on the Do-Not-Call Registry violated the
TSR.
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opportunities, they were “purely informational” and did not involve an
offer to sell goods or services. DP Br.6-7, 15-16. But as the plain text of
the TSR makes clear, the relevant question in determining whether a
call is “telemarketing” is not whether an offer to sell goods or services is
made during the call but whether the call is part of a “plan, program, or
campaign which is conducted to induce the purchase of goods or
services.” 16 C.F.R. § 310.2(hh). Thus, the district court correctly ruled
that “[n]either the definition of telemarketer nor telemarketing requires
a direct sale or sales offer between the person placing the call and the
consumer.” A35. That ruling is consistent with Golan v. Veritas Ent.,
LLC, 788 F.3d 814 (8th Cir. 2015), which held that calls initiated for the
purpose of promoting a film “qualified as telemarketing” under the
analogous provisions of the TCPA “even though the messages never
referenced the film.” Id. at 820.
Second, as the district court observed (A34-35), Defendants’
argument is based on a misreading of FTC guidance. In the statement
of basis and purpose that accompanied the TSR, the FTC explained that
the term “telemarketer” “does not include persons making or receiving
customer service calls or similar tangential telephone contacts, unless a
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sales offer is made and accepted during such calls.” 60 Fed. Reg. 43,842,
43,844 (Aug. 23, 1995) (emphasis added). Here, Day Pacer was not
making customer service calls or engaged in similar tangential
telephone contacts—it was reaching out to potential customers as part
of a campaign to generate leads for for-profit schools. Thus, as the
district court held, the guidance Defendants identify “has no application
here.” A35. Defendants’ suggestion that the calls were outside the scope
of the TSR because they were “purely informational” is likewise
unfounded. DP Br.16. As the district court explained, the FTC has
published FAQs which advise that “purely informational” calls refer to
incidental contacts “like your cable company confirming a service
appointment”—not calls for generating sales leads. A35 (citing D.227-7
at 3-4).
Finally, Defendants receive no support from the various
unreported district court cases involving the TCPA that they cite for the
proposition that “purely informational calls are not subject to the TSR.”
DP Br.16 (citing cases). None of the cases involved calls conducted to
generate sales leads. For example, Hulce v. Zipongo, Inc., 2024 WL
1251108, at *6 (E.D. Wis. Mar. 18, 2024), involved free nutritional
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counseling provided by the consumers’ health plan. Trujillo v. Free
Energy Savings Co., 2020 WL 7768722, at *3 (C.D. Cal. Dec. 21, 2020),
involved the offer of free weatherization paid for by the consumer’s
utility. By contrast, defendants ignore the Eighth Circuit’s decision in
Golan, which makes clear that a call can be “telemarketing” under the
TCPA even if it does not reference the product or service it is promoting.
Golan, 788 F.3d at 820-21.
C.
Defendants Failed to Meet Their Burden To Establish
Express Written Agreement.
Under the TSR, a telemarketer may avoid liability for calling
numbers to the Registry if it can demonstrate that the seller on whose
behalf it is telemarking obtained “the express agreement, in writing, of
[the call recipient] to place calls to that person.” 16 C.F.R.
§ 310.4(b)(1)(iii)(B)(1). The written agreement must “clearly evidence
[the call recipient’s] authorization that calls made by or on behalf of a
specific party may be placed to that person, and shall include the
telephone number to which the calls may be placed and the signature of
that person.” Id. The district court concluded that Defendants had not
“demonstrate[d] that they have obtained such consent.” A43.
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As the court explained, Defendants purchased consumer phone
numbers from various websites but did not introduce “screenshots or
other contemporaneous evidence to establish the contents of the
websites on which the customers supposedly provided express written
consent.” A43. Instead, Defendants relied on call records purportedly
showing the URLs, or website locations, where consumers entered their
phone numbers. But the FTC’s review of a random sample of these
records “indicated that in nearly all cases, the URL records were blank,
contained text that was not a web page, or did not point to an active
web page,” and “[e]ven when they did point to an active web page, they
did not contain any language about telephone calls.” A44. And evidence
submitted by the FTC, including statements of Day Pacer’s own
employees, indicate that the consumers did not provide express written
agreement. A45.
Defendants failed to present any evidence that consumers
provided express written agreement to be called—much less evidence
that meets the strict standards set forth in the TSR. This is fatal to
Defendants’ consent argument since, as the text of the TSR makes
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clear, it is the defendant’s burden to demonstrate that express written
agreement was obtained.
Defendants launch a series of attacks on the district court’s ruling,
but none comes close to hitting its target. Defendants are simply wrong
that the district court “made impermissible credibility determinations
at summary judgment regarding whether [the LLC] Defendants spoke
with consumers who solicited conversations with them.” DP Br.20. The
district court made no credibility determinations. It relied on the
absence of probative evidence submitted by Defendants. A44. In any
event, the issue is not whether Day Pacer CSAs spoke with consumers,
but whether Defendants produced evidence of express written
agreement. They did not.
Defendants are also wrong that consumers provided express
written agreement merely by submitting their telephone numbers to the
websites from which defendants purchased the numbers. DP Br. 20. As
explained above, the TSR imposes specific requirements for express
written agreement, including evidence of consent to be called by or on
behalf of a specific party. Defendants ignore these detailed
requirements. Defendants also misplace their reliance on an FCC
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Report and Order interpreting the TCPA. DP Br. 20-21 (citing In re
R&R Implementing the Tel. Consumer Protect Act of 1991, Report and
Order, 7 F.C.C. Rcd. 8752, 8769 (1992)). That document is from 1992—
two years before the Telemarketing Act was enacted and 11 years
before the FTC amended the TSR to create the Do-Not-Call Registry. It
thus says nothing about how the do-not-call provisions of the TSR
should be interpreted, and certainly cannot override the TSR’s plain
text. Furthermore, Defendants ignore critical language from that FCC
document, which explains that release of a phone number may be
deemed consent only to be called “by the entity to which the number
was released.” 7 F.C.C. Rcd. at 8769; see also Toney v. Quality Res., Inc.,
75 F. Supp. 3d 727, 737 (N.D. Ill. 2014) (“Consent for one purpose does
not equate to consent for all purposes.”). Here, consumers did not
release their phone numbers to Day Pacer. Instead, they submitted
contact information to websites advertising job opportunities and
benefits, which made no mention of Day Pacer.
Defendants do not even attempt to explain how the call records
and transcripts they cite (DP Br. 21) could satisfy their burden to
establish express written agreement. It does not. Defendants disparage
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the FTC’s analysis of their call records as representing a “miniscule
sample” of the more than 11 million call records and fault the FTC for
not reviewing the webpages as of the time consumers accessed them.
DP Br. 21-22. As the district court pointed out, Defendants had “the
burden to show consent” and “besides a handful of call transcripts
indicating that some customers were interested in the educational
opportunities they marketed,” Defendants produced “no evidence that
consumers wanted to receive calls from [Day Pacer] and [its] dialing
vendors or consented to receiving such calls.” A44.8
Defendants quote from various call transcripts, (DP Br. 22-23),
but as the district court noted, those communications came after “the
train had left the station. The dialing vendors had already initiated a
call to a number on the Do Not Call List.” A45-46. Even if they were in
writing and signed (which they were not), these after-the-fact
communications could not serve as “consent to be called in the first
8 In any event, the FTC’s analysis of Defendants’ call records was done
by Kenneth H. Kelly, an FTC economist with a Ph.D. in Economics and
an M.S. in applied mathematics and statistics. His analysis explained
why the random sample used supported with a high degree of
confidence a conclusion that Defendants’ call records did not show
consent. D.212-8 at 79-83 [SA135-39]. Defendants did not rebut this
evidence.
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place.” A45-46. Indeed, Cumming conceded as much, stating in an email
to the Fitzgeralds in 2016 that he did not believe a person could
retroactively consent. D.235 at 3; D.212-6 at 100 [SA105].
D.
Undisputed Evidence Shows That Day Pacer Had the
Requisite Knowledge Necessary To Support Penalties.
A court may assess civil penalties against a defendant for
violations of the TSR only where the defendant had “actual knowledge
or knowledge fairly implied on the basis of objective circumstances” that
its conduct was unfair or deceptive and violated the rule. 15 U.S.C.
§ 45(m)(1)(A); see also United States v. Dish Network L.L.C., 954 F.3d
970, 978 (7th Cir. 2020). The district court properly applied this
standard and correctly held that the undisputed evidence showed that
Day Pacer had the requisite knowledge. A37-41.
The knowledge standard is ultimately objective. “A defendant is
responsible where a reasonable person under the circumstances would
have known of the existence of the provision and that the action
charged violated that provision.” United States v. Nat. Fin. Servs., Inc.,
98 F.3d 131, 139 (4th Cir. 1996). Here, undisputed evidence shows that
a reasonable company in Day Pacer’s position would have known both
of the TSR’s existence and that initiating calls to numbers on the Do37
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Not-Call Registry without express written agreement or an established
business relationship violated the Rule.
Undisputed evidence shows that the Defendants were aware of
the TSR. As early as 2011, their contracts required compliance with the
TSR, prohibited IBT Partners from calling numbers on the Do-Not-Call
Registry, and required the Partners to maintain written policies and
provide training on do-not-call requirements. D.212 14-15, 38-39; D.2123 at 42 [SA039]. Defendants even maintained their own Do-Not-Call
Policy purporting federal and state law. D.212-4 at 91 [SA093].
All three Individual Defendants, as well as EduTrek’s former
president, attested in affidavits that they knew about the TCPA but did
not understand Day Pacer was also subject to the TSR. D.227-2 at 8;
D.227-4 at 8; D.227-6 at 6; D.230-1 at 6-7 [SA145-46]. As the district
court held (A39), Defendants offered no explanation as to how they
could have reasonably known they were subject to the TCPA but
believed they were not subject to the TSR, since a “telephone
solicitation” under the TCPA rule is essentially equivalent to
“telemarketing” under the TSR. Compare 47 C.F.R. § 64.1200(f)(15)
with 16 C.F.R. § 310.2(hh). Defendants argue that Cumming’s
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“research” led them to believe that Day Pacer was exempt (DP Br. 17),
but as the district court explained, they “provide[d] no details
concerning the research that Cumming (or any other attorneys)
performed or why it led them to believe that Day Pacer was exempt
from the TSR.” A39. To the extent that Cumming relied on the FTC
guidance document discussed above, “no reasonable and prudent person
under the circumstances would have concluded that they authorized
Defendants’ telemarketing activity.” Id.
As the district court held, Defendants’ assertion that they did not
understand the TSR’s definition of telemarketing is comparable to an
argument that this Court rejected in Dish Network. A40. In that case,
Dish (a provider of satellite TV service) was found liable for violating
the TSR’s do-not-call provisions through its agents. Dish Network, 954
F.3d at 977-78. Dish maintained that it did not have the knowledge
necessary for imposition of civil penalties based on its interpretation of
FTC guidance regarding the “established business relationship”
defense, which Dish thought justified the calls. Id. at 978-79. The Court
held that the text of the rule was unambiguous and that any mistake of
law based on Dish’s reading of the guidance was not reasonable. Id. at
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979. Likewise here, as shown above, the plain text of the TSR shows
that the Day Pacer’s activities were “telemarketing.” No company in
Day Pacer’s position could reasonably believe otherwise.
Additionally, the undisputed evidence shows that Day Pacer was
told that it was improperly initiating calls to phone numbers on the Do
Not Call Registry. It received complaints from consumers, website
operators, and schools and other lead purchasers. D.229 at 20-22; D.232
at 14-16. A major lead purchaser refused to work with Day Pacer
because it was concerned that Day Pacer had not properly obtained
consent for calls. D.229 at 22; D.232 at 15-16. And Day Pacer admitted
that it “continued to purchase consumer data generated from websites
after receiving complaints regarding those websites depending on the
particular complaint.” D.212 at 13.9
9 Defendants assert that they disputed some of this evidence in their
response to the FTC’s Statement of Material Facts. DP Br. 25. But their
response to each sentence simply said, “Defendants dispute this
sentence” and cited the same evidence relied upon by the FTC. D.229 at
22. Defendants cited no evidence that purported to create a factual
dispute. Such “conclusory statements, unsupported by the evidence of
record, are insufficient to avoid summary judgment.” Cooper-Shut, 361
F.3d at 429. The district court properly treated the FTC’s evidence as
undisputed.
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None of Defendants’ attacks on the district court’s analysis holds
water. Defendants incorrectly argue, once again, that the district court
made impermissible credibility determinations. DP Br. 18, 20, 25. In
fact, the court’s decision was based on an examination of objective
circumstances, as the statute requires.
Defendants also fault the court for not accepting their argument
that their supposed belief that the TSR did not apply was objectively
reasonable because of an investigation by the Utah Division of
Consumer Protection (“UDCP”) in 2017, which did not result in any
enforcement action. DP Br. 17-18. But Defendants’ evidence of the
investigation does not raise any genuine issue of material fact.
Defendants do not claim that the UDCP made any finding that they
were not engaged in telemarketing. Indeed, the UDCP told Defendants
that it thought Day Pacer was a telephone solicitor under Utah law and
that it could not determine otherwise unless Day Pacer provided more
information about their business (which Defendants refused to do).
D.235 at 6; D.236 at 55-56. In any case, an investigation in April 2017
about Defendants’ compliance with the Utah telemarketing laws could
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not have led Defendants to believe a year earlier that the TSR did not
apply to them.
Finally, Defendants are not aided by their observation that the
FTC “pointed to less than 20” examples of complaints from schools and
lead purchasers about calls being made to consumers without proper
consent. DP Br. 25. This evidence clearly shows that Defendants knew
or had reason to know that they were subject to the TSR and were not
complying with the do-not-call provisions. Moreover, Defendants
submitted no evidence that they ever obtained valid consent from
anyone. Defendants’ argument does not create a genuine dispute of fact.
E.
Undisputed Evidence Shows That the Individual
Defendants Are Liable for Day Pacer’s Violations.
The district court properly held based on the undisputed facts that
the Individual Defendants were liable for Day Pacer’s TSR violations.
At least in cases where the FTC seeks monetary relief, this Court has
said that “[t]o impose individual liability on the basis of a corporate
practice, the Commission must prove (1) that the practice violated the
[FTC Act]; (2) that the individual either participated directly in the
deceptive acts or practices or had authority to control them; and (3) that
the individual knew or should have known about the deceptive
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practices.” Credit Bureau Ctr., 937 F.3d at 769. The district court
properly applied this test and held that all three prongs were satisfied
as to each of the three Individual Defendants. The holding as to Day
Pacer satisfied the first prong. A52. As to the second prong, the court
held that “the undisputed facts in the record … show that each of the
Individual Defendants either participated directly in the deceptive acts
or practices or had authority to control them—Ian by running Day
Pacer, and Raymond and Cumming by advising when [Day Pacer] w[as]
faced with strategic business decisions and legal complaints.” Id.
Further, “undisputed evidence in the record also shows that each of the
Individual Defendants knew or should have known their businesses
were subject to the TSR but that they were not making any attempt to
comply.” A54. Defendants have not identified any dispute of material
fact that would preclude summary judgment against the Fitzgeralds or
Cumming.
1.
Authority to Control or Participation. Authority to control a
company “can be evidenced by active involvement in business affairs
and the making of corporate policy, including assuming the duties of a
corporate officer.” FTC v. Amy Travel Serv., Inc., 875 F.2d 564, 573 (7th
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Cir. 1989). Defendants rely on conclusory affidavits (DP Br. 27-28) and
quibbling over immaterial facts (Estate Br. 45) to downplay Raymond
Fitzgerald’s and Cumming’s control and participation, but that does not
suffice to overcome the undisputed record evidence (e.g. D.212 at 29-33).
See Cooper-Schut, 361 F.3d at 429-30. It is undisputed that Raymond
and Cumming both served as “managing members” of EduTrek and Day
Pacer. D.212 at 3-4. As such, they were required to “devote the time and
effort as is reasonably required in the business of the company” and to
“do and perform all … acts as may be necessary to or appropriate to the
conduct of the Company’s business.” D.212-3 at 8-10 [SA007-09]; D.2124 at 10-12 [SA062-64]. Their broad authorities included the ability to
hire and fire corporate officers. D.212 at 3-4, 31-32; D.212-3 at 12-13
[SA011-12]; D.212-4 at 14-15 [SA066-68]. They were the largest
shareholders of both companies, as well as creditors who loaned money
to both companies and had the power to, and did, foreclose on the loans.
D.212 at 31-33. Through their company, Thorpe/Sandy LLC, they were
Day Pacer’s landlords. D.212 at 40. Moreover, contrary to the Day Pacer
Defendants’ and the Estate’s characterization of Raymond’s and
Cumming’s participation in the companies’ affairs as minimal, the
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many emails involving them show a much high degree activity. D.212 at
29-30.
Ian Fitzgerald does not dispute that he served as President of Day
Pacer beginning June 1, 2016, or that in that capacity he oversaw the
company’s day-to-day operations and profitability, which included
hiring and firing employees, signing contracts, and responding to
compliance issues. A52-53. That by itself establishes his authority to
control Day Pacer.
Defendants argue that Ian lacked authority to control Day Pacer
before June 2016. DP Br. 28. But that ignores the undisputed fact that
since at least 2010, Ian served as president of Dalsnan, the holding
company for Raymond’s interests in Day Pacer. D.212 at 30. Ian told
vendors that he had “been involved in [Day Pacer] since 2009 while
working for the investment group that owns it.” D.212 at 4. Even
though Defendants say that in 2015 Ian was just the director of human
resources for the companies, DP Br.28, he was at that time sending
emails to corporate officers urging that “we must make sure our system
is not calling DNC numbers ever.” D.212-6 at 108 [SA109].
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The undisputed facts also establish that the Individual
Defendants directly participated in Day Pacer’s violations. Cumming
and Raymond reviewed the Corporate Defendants’ contracts with IBT
Partners, schools, and lead purchasers; they also provided direction and
guidance regarding business opportunities and legal compliance,
including issues related to telemarketing. D.212 at 29-35, 38-39. Ian
was especially involved in the Corporate Defendants’ practice of
providing consumer data to IBT Partners, D.212 at 18-19, providing
scripts for them to use, D.212 at 19, and reviewing their scripts, id. All
Individual Defendants were aware the Corporate Defendants were
calling numbers on the Registry yet did nothing to stop the calls. D.212
at 10; D.291 at 34. Moreover, Raymond and Cumming both attempted
to hide the existence of successor companies violating the TSR from the
FTC. D.212 at 26-27, 35-36, 45.
2.
Knowledge. As the district court held, all three Individual
Defendants admitted to knowing about the TCPA, which is
substantially similar to the TSR. A54. They actually knew about the
TSR at least as early as 2012. A54. That knowledge came from a variety
of sources ranging from Raymond’s review of contracts representing to
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schools and lead purchasers that Day Pacer and its IBT Partners were
complying with the TSR and TCPA, A54, to Cumming’s research into
the applicability of the TSR to the companies’ business model, A55.
Moreover, the district cited ample evidence that the Individual
Defendants were aware of complaints and compliance reports raising
concerns about potential TSR violations. For example, Cumming and
Raymond knew about the 2014 article reporting on EduTrek’s suspect
business practices. A55. They were involved in lawsuits alleging that
the companies had called numbers on the Do-Not-Call Registry. A54;
D.212 at 36. Ian regularly received reports from a compliance company,
Omniangle, indicating TSR violations. A55; D.212-8 at 122-132 [SA12333]. Further, by 2016 they were aware that the FTC investigation into
the companies’ illegal practices specifically sought information
regarding consent in compliance with the TSR, A56, yet their violations
continued. D.212 at 31.
In short, the district court properly held that all three Individual
Defendants “knew of the TSR and the penalties it imposed; knew that
consumers were complaining about receiving calls from [Day Pacer] and
IBT Partners despite having their numbers registered on the DNC List;
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and knew or should have known that the ‘consents’ that they and the
IBT Partners obtained from customers were not valid.” A57. Defendants
do not actually dispute any of this evidence, but merely argue that such
“scant evidence” was not enough to put them on notice of the violations.
DP Br. at 27-28. The district court properly held otherwise.
II.
THE SCOPE OF THE PERMANENT INJUNCTION IS WITHIN THE
SCOPE OF THE DISTRICT COURT’S DISCRETION.
The permanent injunction entered by the district court bars the
Fitzgeralds and Day Pacer “from participating in Telemarketing or
assisting others engaged in Telemarketing, whether directly or through
an intermediary.” A68. The injunction defines “Telemarketing” as “any
plan, program or campaign which is conducted to induce the purchase of
goods or services by use of one or more telephones, and which involves a
telephone call, whether or not covered by the Telemarketing Sales
Rule.” A68. Such a ban on telemarketing is well within the scope of the
district court’s discretion. Defendants’ overbreadth challenges (DP Br.
29-35) lack merit and should be rejected.
A.
Standard of Review.
District courts enjoy “substantial flexibility” in fashioning effective
equitable relief. Brown v. Plata, 563 U.S. 493, 538 (2011) (cleaned up).
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This Court “will set aside an injunction only if the district court abused
its discretion in imposing it.” SEC v. Yang, 795 F.3d 675, 681 (7th Cir.
2015).
B.
The Injunction Is Not Overbroad.
The Day Pacer Defendants do not contend that the district court
abused its discretion in issuing an injunction. Rather, they attack the
Injunction’s scope as unreasonably broad because it is not limited to the
specific form of misconduct at issue in this case: telemarketing calls to
numbers on the Do-Not-Call Registry or calls related to marketing for
for-profit schools. But it is well-settled that those “caught violating the
[FTC] Act … must expect some fencing in.” FTC v. Colgate-Palmolive
Co., 380 U.S. 374, 395 (1965) (cleaned up). Accordingly, injunctions
must be framed “broadly enough” so they prohibit not just the conduct
giving rise to the violations in the case but also related conduct “to
prevent [defendants] from engaging in similarly illegal practices” in the
future. Id.
Where defendants have violated the TSR, courts have long applied
the foregoing principles to impose bans on telemarketing similar to the
one entered here. For example, in FTC v. Pukke, 53 F.4th 80, 110 (4th
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Cir. 2022), the Fourth Circuit recently affirmed an injunction
permanently barring defendants from telemarketing, whether or not
covered by the TSR, based on their history of TSR violations and other
misconduct. See id. at 99, 106; In re Sanctuary Belize Litig., 482 F.
Supp. 3d 373, 466-67 (D. Md. 2020) (injunction details); see also FTC v.
Life Mgmt. Servs. of Orange Cty., LLC, 350 F. Supp. 3d 1246, 1273,
1276 (M.D. Fla. 2018); FTC v. John Beck Amazing Profits LLC, 888 F.
Supp. 2d 1006, 1011, 1013-15 (C.D. Cal. 2012); FTC v. Think
Achievement Corp, 144 F. Supp. 2d 1013, 1018 (N.D. Ind. 2000).
The terms of the Injunction do not support Defendants’ argument
that the Injunction prohibits Raymond and Ian “from engaging in their
current legitimate and legal businesses” (DP Br. 32) or that the FTC
will argue that they “cannot engage in virtually any type of business
that involves a telephone and the sale of goods or services” (DP Br. 34).
The Injunction does not bar Defendants from all work or business
activities that involve speaking on the telephone—only from activities
that meet the definition of “Telemarketing,” which requires a “plan,
program, or campaign … conducted to induce the purchase or goods or
services” using the telephone. A68. “Defendants are otherwise free to
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use telephones in connection with any job or business.” FTC v.
Pointbreak Media, LLC, 376 F. Supp. 3d 1257, 1273 (S.D. Fla. 2019).
Moreover, the record does not support Defendants’ professed
concern that Raymond Fitzgerald may be found to have violated the
Injunction if he speaks to a potential client on the phone (DP Br. 32-33)
or that Ian Fitzgerald’s “prospects for other employment [are] severely
restricted” (DP Br. 33). Raymond told the district court: “I don’t make
calls to anybody anymore … I certainly don’t make calls to consumers
for revenue [and] I don’t run any businesses that do that.” D.291 at 32.
Ian has a college degree and testified that he has held positions in other
fields, including commercial real estate, data center project
management, asset management, and e-commerce. D.227-5 at 7-11.
There is likewise no merit to Defendants’ argument that the
injunction is overbroad because it covers business-to-business
telemarketing even though that conduct is not covered by the TSR (DP
Br. 33).10 These prohibitions are necessary to prevent Defendants from
calling consumers in the Registry in violation in the TSR, and thus
10 The district court stayed this portion of the injunction pending
appeal, but that has no bearing on whether it exceeded the scope of the
court’s discretion.
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constitute appropriate “fencing in.” Colgate-Palmolive, 380 U.S. at 39495. As the district court concluded, the Defendants’ business model
involved purchasing telephone numbers from websites and cold calling
those numbers, while never subscribing to the Do-Not-Call Registry. See
D.291 at 34. Even if Defendants claim to be calling only businesses,
there is no reason to expect that they will scrub their phone lists to
ensure that they do not call consumer numbers on the Registry.
Defendants’ claims (DP Br.33) about Ian Fitzgerald’s current
business, Allied Capital Management illustrates the risk. Insofar as
Allied is engaged in business-to-business telemarketing, there is no
record that it has adopted safeguards, such as subscribing to the
Registry, to ensure that its self-described “high volume cold calling”
(D.303-1 at 8) is not to consumers whose numbers were on the Registry.
Further, it is not enough for Ian to intend that Allied’s telemarketing
calls be solely to businesses; rather, those calls must, in fact, be so
limited. FTC v. INC21.com Corp., 745 F. Supp. 2d 975, 1007 (N.D. Cal.
2010). Accordingly, a ban on all telemarketing is legally and factually
justified to protect consumers from further TSR violations.
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Defendants also fault the Injunction for banning telemarketing of
products other than for-profit education opportunities. DP Br.32. They
ignore that injunctions properly reach not only conduct giving rise to
violations but also related conduct “to prevent [defendants] from
engaging in similarly illegal practices” in the future. Colgate-Palmolive,
380 U.S. at 395. Telemarketing operations are used to support sales of
countless products, and courts have imposed broad bans based on the
ease of transferring telemarketing practices to other products. See John
Beck, 888 F. Supp. 2d at 1014-15. There is no reason why the
Defendants here could not easily apply the same business model to
telemarketing other products. Indeed, the undisputed evidence in this
case shows that they began marketing home security systems in May
2016, D.235 at 5-6; D.236 at 53, which is far removed from for-profit
education opportunities.
Finally, the Defendants’ assertion that the injunction provides the
FTC with relief it did not seek insofar as it bans the Fitzgeralds and
Day Pacer from “assisting others engaged telemarketing, whether
directly or through an intermediary” (A68) is incorrect. The FTC sought
this exact relief from the very outset. D.211-1 at 5. Without such a
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provision, the Injunction would be toothless, because Defendants could
easily pay another entity to engage in telemarketing for them.
Defendants misconstrue the court’s statement that the FTC’s proposed
injunction “does not contain any provisions concerning the IBT
partners.” DP Br. 35 (quoting A51). The court was simply stating,
correctly, that since the FTC did not directly seek relief against the IBT
Partners, there was no need to assess liability as to all of the IBT
Partners.
III. THE DISTRICT COURT PROPERLY AWARDED CIVIL PENALTIES.
The district court did not abuse its discretion in awarding
$28,681,863.88 in civil penalties and holding all Defendants jointly and
severally liable for that amount. As the court explained, the $28.7
million figure was equal to Defendants’ gross revenue during the
relevant time period—money they actually received—and works out to
$6.88 for each of the 4,168,511 calls placed by or transferred to EduTrek
and Day Pacer. (If the nearly 40 million illegal calls placed by the IBT
Partners and not transferred were included, the per-call penalty would
be substantially lower.) The court’s analysis clearly shows that it
considered the mandatory factors set forth in 15 U.S.C. § 45(m)(1)(C).
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See A59 (citing factors and noting that the FTC’s brief discussed each of
them).
Apart from broad-brush arguments that they should not be
subject to civil penalties, Defendants’ summary judgment briefing did
not address the § 45(m)(1)(C) factors. Nevertheless, the district court
gave Defendants an opportunity to submit additional information about
these factors, including information about whether Day Pacer was still
in business and about “the Defendants’ ability to pay and the effect any
penalty would have on an ability to do business.” A61-62. At the hearing
on the penalty assessment, the Estate requested the opportunity to file
a brief addressing its “distinct interests and arguments on remedies
separate from Cumming,” which the court granted. A85.
After receiving these submissions, the court ultimately concluded
that the FTC’s proposed $28.7 million award “has a reasonable
connection to the Section 45 factors—basically, given the scope of
Defendants’ TSR violations, their knowledge of those violations, and
their high culpability in trying to mask those violations, all revenue
from those calls should be forfeited as a civil penalty.” A87.
Furthermore, a penalty of $6.88 per unlawful call fell “well within the
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range for the difficult-to-quantify harm from TSR violations.” A87-88.
The court rejected the Estate’s arguments that the proper penalty
should be either $0.12 per call (based on a law review article) or $2.54
per call (the rate used by the district court in Dish Network). A87.
Defendants have not shown that the district court abused its discretion
in any aspect of this analysis.
A.
Standard of Review.
This Court reviews a district court’s civil penalty award for abuse
of discretion. SEC v. Williky, 942 F.3d 389, 393 (7th Cir. 2019). “A court
abuses its discretion only if ‘the record contains no evidence upon which
the court could have rationally based its decision; the decision is based
on an erroneous conclusion of law; the decision is based on clearly
erroneous factual findings; or the decision clearly appears arbitrary.’”
Id. (quoting United States v. Z Inv. Props., LLC, 921 F.3d 696, 698 (7th
Cir. 2019)).
B.
The Court Did Not Abuse Its Discretion By Awarding
a Civil Penalty Equal to Gross Revenue.
The district court properly considered the factors set forth in
§ 45(m)(1)(C). Having done so, it concluded that an appropriate penalty
would be to deprive Defendants of their gross revenue, which was $28.7
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million or $6.88 per illegal call. Contrary to the Estate’s argument
(Estate Br. 24-27), the district court did not abuse its discretion by
awarding a penalty equal to gross revenue. To the contrary, the district
court must consider “such … matters as justice may require,”15 U.S.C.
§ 45(m)(1)(C), which certainly includes the need to fully and
appropriately deter misconduct. Given Defendants’ “high culpability”
(A87) and the need for deterrence, an award equal to gross revenue was
reasonable and appropriate, especially given the difficulty of
quantifying the very real harms that do-not-call violations cause to
consumers.
The Estate is incorrect in arguing that this Court’s 2020 decision
in Dish Network precluded the district court from awarding a penalty
equal to gross revenue. In Dish Network, the court vacated and
remanded a penalty determination where the district court relied
“entirely” on the defendant’s ability to pay. Dish Network, 954 F.3d at
980. The Court noted that while “[n]ormally” civil damages are based on
harm, “[l]egislatures can change this norm,” and that Congress had
done so in the FTC Act by requiring courts to consider ability to pay—
although ability to pay cannot be the “sole factor” supporting an award.
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Id. The Court held that the “best way” generally to determine whether a
civil penalty amount is “within a constitutionally allowable range” is to
start with harm and add an appropriate multiplier, id., but it did not
suggest that this was the only permissible approach or rule that
statutory factors are irrelevant.
This portion of Dish Network is not on point here because the
district court did not base its penalty award solely on the Defendants’
ability to pay. Nothing in Dish Network or the statute precludes the
approach taken by the district court here. A fixed rule that district
courts must always start with an estimate of harm and may not apply
any other approach would be highly problematic as applied to do-notcall violations. This Court has recognized that unwanted calls cause
real harm, because “[e]very call uses some of the phone owner’s time
and mental energy, both of which are precious.” Patriotic Veterans, Inc.
v. Zoeller, 845 F.3d 303, 305-06 (7th Cir. 2017); see also 15 U.S.C.
§ 6101 (congressional findings of harm caused by telemarketing
deception and abuse). But that harm can be very difficult to quantify
precisely, and may vary significantly from one consumer to the next.
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The approach the court used here is more reasonable and workable in
this context.
The court’s approach properly considered the harm to consumers.
The court’s conclusion that a penalty of $6.88 per illegal call fell “well
within range for difficult-to-quantify harms caused by TSR violations”
(A87-88) was well within its discretion. For example, the court cited
Parchman v. SLM Corp., 896 F.3d 728, 740 (6th Cir. 2018), which held
that a penalty of $500 per call for TCPA violations is not
“disproportionate to the harm suffered as a result of receiving these
irritating and invasive calls, especially where the harm is hard to
quantify and may vary significantly from person to person.” Parchman,
896 F.3d at 740.
The Estate has not shown why a mere $6.88 per call is an
unreasonable estimate of the very real harm to consumers resulting
from Defendants’ joint misconduct. Instead, the Estate merely points to
a law review article estimating harm from calls to numbers on the
Registry of no more than $0.12 per call. Estate Br.41-42. But that
article is not evidence (it certainly does not qualify as an expert analysis
for purposes of litigation), and the district court did not abuse its
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discretion in declining to accept that extraordinarily low estimate of
harm. Nor was the court required to accept the Estate’s alternative
calculation of $2.54 per call, which was based on the district court
decision in Dish Network. A87. And no party offered any other
calculation, much less one based on a reasonable methodology.
The Estate’s argument that the district court was required to
consider Defendants’ net profits rather than their gross revenues
(Estate Br. 40) is also wrong. The case the Estate cites, R&W Tech.
Servs. Ltd. v. CFTC, 205 F.3d 165, 178 (5th Cir. 2000), involved penalty
factors under a different statute: the Commodity Exchange Act.
Compare 7 U.S.C. § 9a with 15 U.S.C. § 45(m)(1)(C). And as the district
court explained, “if we were to use net profits—which I think all agree
are essentially zero—that there is no deterrent effect; that it would
allow companies to engage in behavior that the regulations prohibit
with essentially no consequence.” D.291 at 49. Further, a net-profits
rule would result in only successful businesses paying civil penalties,
while unsuccessful ones would be off the hook for their TSR violations.
Finally, the Estate’s argument that the civil penalties are
prohibited by AMG Capital Management, LLC v. FTC, 593 U.S. 67
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(2021), is wrong. Estate Br.27. AMG held that the FTC cannot obtain
monetary relief under Section 13(b) of the FTC Act, which authorizes
courts to issue a “permanent injunction.” 15 U.S.C. § 53(b). The civil
penalties here are issued under 15 U.S.C. § 45(m), which expressly
authorizes monetary civil penalties (a form of legal relief). The fact that
the Court used gross receipts as the basis for the penalty award does
not make it equitable disgorgement, and as shown above, nothing in
§ 45(m) precludes the use of gross receipts as the measure of civil
penalties. AMG is irrelevant.
C.
The District Court Properly Held All Defendants
Jointly and Severally Liable.
Contrary to the Estate’s argument, the district court did not abuse
its discretion by holding all Defendants jointly and severally liable for
the penalties, rather than separately assessing penalties based on each
Defendant’s individual degree of culpability. The district court found
that EduTrek and Day Pacer operated as a common enterprise and that
Day Pacer is liable for EduTrek’s TSR violations as EduTrek’s
successor. A33 n.5. As discussed above, undisputed evidence shows that
all three of the Individual Defendants were involved in running these
companies: they knew of the violations, had authority to control them,
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and did nothing to stop them. Under these circumstances, the court did
not abuse its discretion in holding all Defendants jointly and severally
liable for a single civil penalty.
Where multiple defendants are held liable for FTC Act violations,
that liability is typically joint and several. See, e.g., FTC v. QT, Inc., 512
F.3d 858, 864 (7th Cir. 2008). The Estate asserts that the district court
erred in not applying the statutory civil penalty factors to each
Defendant individually, contending that the “concept of joint and
several liability does not apply to civil penalties.” Estate Br.28. But the
principal case it relies on, a district court decision in Dish Network,
involved only a single defendant. United States v. Dish Network LLC,
2015 WL 9164539, at *2 (C.D. Ill. 2015). That case thus says nothing
about whether joint and several liability is appropriate in a case like
this, involving a common enterprise controlled by multiple individual
defendants. The Estate’s other cases involve punitive damages, not civil
penalties. E.g., McKinnon v. City of Berwyn, 750 F.2d 1383, 1387 (7th
Cir. 1984).
Defendants are certainly entitled to an individual assessment of
whether they should be held liable for penalties—and the court in fact
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conducted such an assessment in accordance with well-settled common
enterprise and individual liability standards under the FTC Act—but
the Estate cites no authority suggesting that once Defendants were
found liable, it was improper for the court to impose joint-and-several
liability. Where Congress wants to require individualized liability
assessments for each defendant, it knows how to do so. See, e.g., 15
U.S.C. § 77t(d)(2)(A) (penalty provision under securities laws requiring
awards against defendant to be based on “the gross amount of
pecuniary gain to such defendant”). It did not impose such a
requirement in the FTC Act.
The fact that liability is joint and several, not individual, disposes
of many of Defendants’ arguments. For example, it does not matter if
the award exceeds any individual Defendant’s ability to pay—the
question is whether it exceeds all Defendants’ collective ability to pay.
Defendants make no showing that it does. Similarly, differences in
individual Defendants’ level of knowledge or culpability do not matter
because all the Defendants had sufficient involvement and knowledge to
be jointly liable for all the misconduct.
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D.
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Defendants Have Not Shown Any Abuse of Discretion
With Respect to the Statutory Factors.
The Estate’s analysis of the § 45(m)(1)(C) factors suffers from two
fundamental flaws. First, the standard of review here is abuse of
discretion. That means the Court is not to undertake the analysis for
itself, but simply assesses whether the district court considered the
proper factors. See, e.g., E. Natural Gas Corp. v. ALCOA, 126 F.3d 996,
1002 (7th Cir. 1994). As discussed above, the decision plainly shows
that the district court did consider the § 45(m)(1)(C) factors. Second, the
Estate’s arguments all assume that the court was required to assess the
conduct of Cumming and/or the Estate individually. But as shown
above, that is not correct, because the court properly held the
Defendants jointly and severally liable based on their joint participation
in an unlawful endeavor. And even if the Estate were correct, as a
practical matter and as shown throughout this brief, the court assessed
the conduct of each Individual Defendant. In any event, the Estate’s
analysis of the factors cannot withstand scrutiny. 11
11 The DP Defendants join in the challenge but offer no arguments of
their own. DP Br.38-40.
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1.
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Defendants were highly culpable.
The court properly found that the Defendants were highly
culpable, having ignored the TSR’s requirements in committing millions
of violations and deliberately misleading their business partners and
the FTC to shield their illegal conduct from scrutiny. A87. Defendants’
failure to implement any procedures to comply with the TSR speaks to a
high level of culpability and resulted in over 4 million violations just
counting the calls initiated by or transferred to Day Pacer. D.291 at 34,
39. Beyond failing to implement these safeguards, Defendants were
dishonest and evasive in response to regulatory scrutiny, compliance
monitoring efforts, and in this litigation. D.229 at 40-41, 65; D.232 at
33-34; D.235 at 6; D.236 at 55-56.
The Estate uses the culpability factor to try to re-litigate
Cumming’s individual liability. Estate Br.31-36. The district court
properly rejected that attempt in its order on civil penalties, A86, and
this Court should do the same. Regardless, the undisputed evidence and
Cumming’s own testimony demonstrated that he was an engaged and
active participant in the enterprise with an understanding of the
industry whose advice Ian and Raymond both solicited. D.212-6 at 65-
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68 [SA095-98]; D.212-7 at 125-132 [SA114-21]. He was formally
designated a “corporate manager” for Day Pacer, and their operating
agreements gave him broad rights, powers, and duties without regard
to his ownership interest. D.212-4 at 11-12 [SA063-64]; D.212-3 at 9-10
[SA008-09]. Even if Cumming did not work on site, he understood the
nature of Day Pacer’s business, admitting that he was “a member and
manager of companies that operate call centers,” D.230-1 at 4 [SA143],
and that “[t]he goal of the two call center companies was to sell leads,”
id. Further, record evidence of his numerous emails shows substantial
involvement with company decisions, see D.212 at 30, which Cumming’s
unsupported denials (see Estate Br.32) cannot overcome. All of that
undisputed evidence was more than enough to establish Cumming’s
involvement and subject him to joint and several liability.
The Estate also argues that the district court erred by not
allowing the Estate to make new arguments after the summary
judgment decision had been entered or to raise those same arguments
in connection with the penalty assessment. But Cumming fully
participated in the summary judgment briefing and other district court
proceedings before his death, and was not entitled to make new
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arguments. Furthermore, once the Estate was substituted, it stood in
Cumming’s shoes and is liable to the same extent he would have been.
See Brook, Weiner, Sered, Kreger & Weinberg v. Coreq, Inc., 53 F.3d 851,
852 (7th Cir. 1995).
The Estate’s argument that the district court should have
considered how Cumming’s subjective state of mind bears on his
culpability is also wrong. Again, the issue here is the collective
culpability of participants in a joint enterprise, not the relative
culpability of each individual defendant.12 In any event, the only case
cited by the Estate, United States v. Dish Network LLC, 256 F. Supp. 3d
810, 976 (C.D. Ill. 2017), does not support the position that
consideration of subjective intent was required. There, the district court
assessed Dish’s culpability by considering objective facts regarding the
company’s actions, not the subjective state of mind of those acting on
the company’s behalf. See id. at 976-78. That is consistent with the FTC
Act’s objective knowledge standard for imposing civil penalties. 15
U.S.C. § 45(m)(1)(A).
12 Nevertheless, the court assessed the culpability of each Defendant.
See A54-57.
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Finally, the Estate complains that the district court did not
consider evidence of Cumming’s culpability because the court deemed
the FTC’s statement of material facts admitted due to the Defendants’
failure to comply with the requirements of Local Rule 56.1. Estate
Br.33; see also Estate Br.42-44. The Estate suggests that Cumming’s
affidavit denying personal involvement in Day Pacer’s actions sufficed
to satisfy LR 56.1, Estate Br.33, but an examination of the affidavit,
D.230-1 [SA140-51], readily reveals its deficiency. Most glaringly, it
contains no citations to evidence in the record supporting Cumming’s
denials. See Cooper-Shut, 361 F.3d at 429-30. Circuit precedent amply
supports the district court’s deeming the FTC’s facts admitted under
these circumstances. See Smith v. Lamz, 321 F.3d 680, 683 (7th Cir.
2003); Michas v. Health Cost Controls of Ill., Inc., 209 F.3d 687, 689 (7th
Cir. 2000); Edward E. Gillen Co. v. City of Lake Forest, 3 F.3d 192, 196
(7th Cir. 1993). And contrary to the Estate’s view, there was no
unfairness in not giving the Estate a second chance to contest the FTC’s
facts.
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Defendants have a long history of misconduct.
The district court’s opinion does not indicate that it relied heavily
on Defendants’ history of prior misconduct, as opposed to their high
degree of culpability and the need for deterrence. But it is undisputed
that the misconduct here dates back to 2010, even though the penalty is
only for conduct starting in 2014. The Estate incorrectly asserts that
prior misconduct for which penalties are time-barred cannot be
considered. Estate Br.37. Such a rule would mean a court could not
consider pre-limitations conduct even if it reflected a lifetime of
violations. The Estate cites no authority for this proposition, and in
other contexts the Supreme Court has held that conduct outside the
limitations periods may be considered “as background evidence in
support of a timely claim.” Nat’l R.R. Passenger Corp. v. Morgan, 536
U.S. 101, 113 (2002). Moreover, here, the statute authorizing penalties
expressly requires consideration of prior conduct and places no time bar
on doing so. To the extent the district court relied on time-barred
misconduct or otherwise considered the duration of the misconduct, that
was not an abuse of discretion.
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3.
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Defendants have not shown the penalty exceeds
their collective ability to pay.
The Estate’s argument on ability to pay seems to be that the $28.7
million civil penalty is unjustified because it exceeds the Estate’s value
of less than $12 million. Estate Br.37. The Day Pacer Defendants make
a similar point. DP Br.38-39. But the award here is joint and several, so
the question is whether the award exceeds the Defendants’ collective
ability to pay (including both individual and corporate assets).
Moreover, a defendant’s ability to pay is not limited to its current assets
and can include dissipated assets. See United States v. Daniel Chapter
One, 89 F. Supp. 3d 132, 153 (D.D.C. 2015); see also United States v.
Danube Carpet Mills, Inc., 737 F.2d 988, 995 (11th Cir. 1984) (refusing
to limit ability to pay to current assets or net profits). Defendants have
not shown that the award exceeds their collective ability to pay.
Anyway, “ability to pay is not a determinative factor” and “does not
prevent the court from imposing a significant penalty, if the other
factors so warrant.” United States v. Cornerstone Wealth Corp., 549 F.
Supp. 2d 811, 824 (N.D. Tex. 2008).
The Estate cites the district court’s analysis in Dish Network,
Estate Br.37, but that case had very different facts; Dish was a vastly
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larger company that earned revenues legitimately by offering broadcast
satellite service. 256 F. Supp. 3d at 978. Here, Day Pacer’s entire
business and the source of all of its income derives from telemarketing.
Given the gravity and duration of the misconduct and the need for
deterrence, an award of $28 million is not an abuse of discretion here.
4.
Day Pacer is no longer in business.
Day Pacer’s business was telemarketing and the district court
properly enjoined the company from continuing in that business, since
the failure to comply with the TSR pervaded all its operations. The
ability to continue in business factor is entitled to little or no weight in
these circumstances. See Cornerstone Wealth Corp., 547 F. Supp. 2d at
824 (“ability to do business” factor had no impact on analysis where
defendants’ conduct warranted a ban). In any event, Day Pacer is no
longer in business. D.291 at 30-31.13 Defendants have not shown any
abuse of discretion with respect to this factor.
The Estate’s argument that its “business” is to pay Cumming’s debts
and distribute any remaining assets according to his wishes ignores the
fact that one of those debts is to the United States government for
Cumming’s misconduct in this case. See, e.g., 755 Ill. Comp. Stat. § 5/1813 (requiring personal representative to “pay from the estate all claims
entitled to be paid therefrom, in the order of their classification”) The
Estate is obligated to pay a meritorious government claim.
13
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5.
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The need for general and specific deterrence
supports the penalty.
Other factors relevant to the penalty analysis include the need for
both general and specific deterrence of misconduct. The district court’s
decision makes clear that it gave significant weight to this factor, and
thus determined that gross revenues represented an appropriate civil
penalty. The Estate’s argument that the civil penalty here will have no
specific deterrence on Cumming given his death (Estate Br.22-23, 38)
ignores that a civil penalty has a general deterrence effect: it deters
others from violating the TSR. See Krueger v. Cuomo, 115 F.3d 487, 493
(7th Cir. 1997) (upholding an award of civil penalties that included in
its analysis the need to deter other landlords). As to the other
Defendants, the penalty serves both general and specific deterrence
functions. The district court did not abuse its discretion by considering
deterrence.14
The district court was not required to consider whether the Estate’s
assets are tainted by misconduct or whether Defendants benefited from
the violations. Estate Br.38-40.
14
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E.
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The Award Does Not Exceed the Relief the FTC
Requested.
Contrary to the Day Pacer Defendants’ argument (DP Br. 36), the
award does not exceed the amount requested by the FTC. A penalty of
$28,681,863.88 is precisely what the FTC requested. Defendants’
argument appears to be that the district court should have awarded
penalties only on the 3,669,914 calls made by Day Pacer, not on the
498,857 additional calls made by IBT Partners and transferred to Day
Pacer. The district court reasonably included the 498,857 inbound
transfer calls because Day Pacer directly participated in those calls, as
opposed to the calls that were never transferred. But in any event, it
does not matter because the court based the penalty on Defendant’s
gross revenues. Eliminating the inbound transfers from the base would
simply have increased the penalty per-call by a small amount (less than
$1 per call).
F.
If the Court Finds an Abuse of Discretion, the Proper
Course Is To Remand.
For all the reasons set forth above, the district court did not abuse
its discretion in imposing a $28.7 million civil penalty jointly and
severally on all Defendants. If the Court disagrees for any reason,
however, the proper course is to remand to the district court for
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recalculation. The Court should not accept the Estate’s alternative
calculation of between $0 and $900,000. Estate Br.40-42. That
calculation is flawed for two reasons. First, it is based on the law review
article discussed above, which estimated harm of only $0.12 per call
from unwanted call. As discussed above, that article does not meet the
requirements for expert analysis and should not be considered as
evidence of harm. Second, the Estate’s argument that it should not be
liable for penalties on calls in 2014 and 2015 misreads the district
court’s decision by taking out of context the court’s description of one
example of Defendants’ knowledge, i.e., their April 2016 examination of
selling products directly. A54-55. The court made many other findings
that Defendants’ knowledge predated 2016 or even 2014. For example,
the court noted that Defendants had entered into contracts since 2012
representing that they would comply with the TSR and had notice since
at least 2014 that they were calling consumers who submitted their
information on deceptive websites. A54-56. Cumming himself knew in
2014 and before about the TSR and had reason to believe Day Pacer
was violating the rule. A55; D.212 at 34; D.212-10 at 218; D.230-1 at 8
[SA147].
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THE DISTRICT COURT PROPERLY SUBSTITUTED THE ESTATE FOR
CUMMING.
Following Cumming’s death, the district court properly
substituted the Estate as a defendant under Fed. R. Civ. P. 25. 15
Substitution is proper where the action is primarily remedial, rather
than penal. Smith,615 F.2d at 414-15 (7th Cir. 1980). The fact that the
plaintiff seeks a statutory civil penalty “does not end the analysis”
because “the term ‘penal’ is used in different contexts to mean different
things.” Id. at 414. Courts have frequently held that actions seeking
civil penalties under consumer protection statutes that protect
individuals are remedial for substitution purposes, regardless of
whether a private party or the government is the plaintiff. See, e.g.,
Parchman, 896 F.3d at 740-41 (action seeking statutory penalty under
TCPA was primarily remedial); Smith, 615 F.2d at 414-15 (action
seeking penalties under Truth in Lending Act was primarily remedial);
FTC v. Capital City Mortgage Corp., 321 F. Supp. 2d 16 (D.D.C. 2004)
(FTC action seeking civil penalties for violations of Equal Credit
Opportunity Act was remedial). Likewise here, because the government
Rule 25(a) provides in relevant part: “If a party dies and the claim is
not extinguished, the court may order substitution of the proper party.”
15
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here is seeking penalties under the Telemarketing Act and TSR—a
remedial statute designed to protect individual consumers from harm—
the action is properly treated as primarily remedial rather than penal
for substitution purposes.
A.
Standard of Review.
On review of a FRCP 25(a) substitution, the court reviews legal
issues de novo and factual findings for clear error. See Russell v. City of
Milwaukee, 338 F.3d 662, 665 (2003). To the extent that the court may
consider equitable factors, its weighing of those factors should be
subject to abuse of discretion review. See, e.g., Kempner Mobile Elecs.,
Inc. v. Sw. Bell Mobile Sys., 428 F.3d 706, 715 (7th Cir. 2005).
B.
The District Court Properly Applied the Three-Part
Test For Determining Whether an Action is Penal or
Remedial for Substitution Purposes.
In Smith, this Court held that whether an action is primarily
remedial or penal for substitution purposes turns on “(1) whether the
purpose of the action is to redress individual wrongs or wrongs to the
public; (2) whether recovery runs to the individual or the public; (3)
whether the authorized recovery is wholly disproportionate to the harm
suffered.” 615 F.2d at 414. The district court correctly applied this test
(which has also been widely adopted by other courts) and determined
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that an FTC action to enforce the TSR is primarily remedial for
substitution purposes, even where the relief sought includes civil
penalties under 15 U.S.C. § 45(m). The Estate has not shown any error
in this analysis.
1.
FTC actions to enforce the TSR protect
individual consumers from harm.
Under the first prong of Smith, the fact that an action redresses
harm to individuals rather than simply harm to the general public
weighs in favor of treating it as remedial rather than penal for
substitution purposes. The district court concluded that this factor
weighed in favor of substitution, explaining that “when a consumer
receives a telemarketing call after placing her name on the [Do-NotCall] List, but a telemarketer calls her anyway, the harm is felt by the
individual consumer, not the public generally.” A.16. That conclusion
was correct.
When the Commission sues in district court to enforce the TSR
and the Telemarketing Act, it is acting both to protect the public and to
safeguard individual rights. Such an action protects individual
consumers from harm regardless of whether the relief sought is an
injunction, see 15 U.S.C. § 53(b), the refund of money or other
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restitution, see id. § 57b(b), civil penalties, see id. § 45(m), or some
combination of these remedies. In particular, civil penalties for TSR
violations protect individual consumers from harm by discouraging
similar misconduct going forward. See Friends of the Earth, Inc. v.
Laidlaw Env’t. Servs. (TOC), Inc., 528 U.S. 167, 186 (2000) (civil
penalties “afford redress” insofar as they “encourage defendants to
discontinue current violations and deter them from committing future
ones.”).
As the district court held, the Sixth Circuit’s decision in Parchman
is highly instructive as to the first factor because it involves provisions
of the TCPA that are closely analogous to the TSR and the
Telemarketing Act. In Parchman, private plaintiffs sued companies
that violated the TCPA by making automated telephone calls (i.e.,
robocalls). They sought relief under a TCPA provision that authorizes
the recovery of actual damages or $500 per call, whichever is greater,
and gives the district court discretion to triple that amount for knowing
or willful violations. Parchman, 896 F.3d at 731; see 47 U.S.C.
§ 227(c)(5). The court held that the first factor suggested the TCPA was
remedial because its “primary purpose,” as reflected in express
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Congressional findings, was “to protect individuals from the
harassment, invasion of privacy, inconvenience, nuisance, and other
harms associated with unsolicited, automated calls.” Parchman, 896
F.3d at 738. These harms are “felt by identifiable individuals,” not by
“the general public, as a community” even though the TCPA “can also
be described as attempting to deter socially undesirable calling
practices.” Id. at 739.
As the district court correctly held, this same reasoning applies to
the TSR and the Telemarketing Act, which serve the same basic
purpose and prohibit much of the same conduct. In enacting the
Telemarketing Act, Congress made explicit findings that “[c]onsumers
and others are estimated to lose $40 billion a year in telemarketing
fraud,” that “[c]onsumers are victimized by other forms of telemarketing
deception and abuse,” and consequently that Congressional action was
necessary to “offer consumers necessary protection from telemarketing
deception and abuse.” 15 U.S.C. § 6101(3)-(5). As this language shows,
Congress’s focus in enacting the Telemarketing Act, like its focus in the
TCPA, was protecting individual consumers from harm. The legislative
history surrounding Congress’s later ratification of the Do-Not-Call
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Registry is also replete with statements emphasizing that the Registry
is intended to protect individuals from harm. 16 As in Parchman, this
factor thus suggests that an FTC Action to enforce the TSR is primarily
remedial for substitution purposes.
Other decisions, including Smith and Capital City, reinforce this
conclusion. In Smith, this Court held that the first factor favored
treating an action for a civil penalty under the Truth in Lending Act
(“TILA”) as remedial. Even though the law redressed a “perceived social
ill,” Congressional findings and prior Supreme Court analysis of the
statute showed that the “primary purpose” of a TILA action was to
“redress individual wrongs.” Smith, 615 F.2d at 414; accord Murphy v.
See, e.g., Do-Not-Call Registry, 149 Cong. Rec. S11957-01, S11965,
2003 WL 22217295, at *22 (statement of Sen. Olympia Snowe) (“The
Do-Not-Call registry provides a very important service-preventing
undue intrusions from marketers. Citizens should have the right not to
be disturbed by unsolicited calls in their own homes and the Do-NotCall registry empowers citizens to stop these calls.” (emphasis added));
id., at S11958, at *5 (statement of Sen. John McCain) (“Obviously, we
urge our colleagues to support the measure, give consumers what they
want by empowering them to say no to what they clearly do not want.”
(emphasis added)); id., at S11965, at *21 (statement of Sen. Chris Dodd)
(“[T]he right to be left alone is really at the heart of what we are talking
about-the right to say to someone: You don’t have the right to call me
anytime you want. I should have some ability to control that intrusive
invasion in the privacy of my family’s life.” (emphasis added).
16
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Household Fin. Corp., 560 F.2d 206, 208-11 (6th Cir. 1977). And in
Capital City, the court held that the first factor supported treating as
remedial the FTC’s action seeking civil penalties for violations of the
Equal Credit Opportunity Act and its implementing regulations
violations because the ECOA was “clearly intended to protect
individual[s]” from “having their credit applications denied for
discriminatory reasons.” Capital City, 321 F. Supp. 2d at 21-22. “While
the overall enforcement of the ECOA may deter discrimination-based
lending practices, the Act was clearly intended to protect individual
consumers from discriminatory credit practices.” Id. at 22; see also Dish
Network, 256 F. Supp. 3d at 934 (civil penalties under FTC Act for TSR
violations deemed remedial, rather than punitive, such that actions of
agent could be imputed to principal).17
The Supreme Court recently ruled in SEC v. Jarkesy, No. 22-859 (S.
Ct. June 27, 2024), that civil penalties for fraud under the securities
law are a legal remedy and that defendants thus have a Seventh
Amendment right to a jury trial where the SEC seeks such penalties.
The Court explained that in the Seventh Amendment context “a civil
sanction that cannot fairly be said solely to serve a remedial purpose,
but rather can only be explained as also serving either retributive or
deterrent purposes, is punishment.” Slip Op. at 9 (emphasis added;
citation omitted). But the fact that a defendant facing civil penalties
that are not solely remedial is entitled to a jury trial under the Seventh
17
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The Estate’s attacks on the district court’s analysis of the first
Smith factor do not withstand scrutiny. To begin with, the Estate’s
argument that the inquiry should focus solely on the purposes of the
“action” without regard to the purposes of the TSR and the
Telemarketing Act (Estate Br.12-13) is incorrect. One cannot
understand the purpose of an action without considering the statutory
scheme authorizing it, and indeed in Smith the Court explicitly
addressed the “focus of the legislation.” Smith, 615 F.2d at 414.18 While
Amendment is not determinative of whether an action is penal or
remedial for substitution purposes under Rule 25. In the substitution
context, this Court has recognized that an action can be treated as
remedial even if it has some penal aspects. See Smith, 615 F.2d at 415
(TILA action is “primarily not penal, but rather remedial”).
The unreported district court cases that the Estate cites (Br.12-13)
are not to the contrary. In both cases, district courts held that although
a complaint for actual damages under the Fair Credit Reporting Act
survived the plaintiff’s death, claims for punitive damages did not. See
Irvin-Jones v. Equifax Info. Servs., LLC, 2019 WL 4394684, at *2-3
(S.D. Tex. Sept. 13, 2019); Beaudry v. Telecheck Servs., Inc., 2016 WL
11398115, at *11-16 (M.D. Tenn. Sept. 29, 2016). Regardless of whether
those holdings are correct, they are immaterial because civil penalties
for TSR violations serve “a markedly different purpose than punitive
damages” and have been treated as remedial. Dish Network, 256 F.
Supp. 3d at 934-35. Notably, Irvin-Jones did not expressly apply the
three-prong test at all, while Beaudry properly recognized that the first
prong focuses on “the purpose of the statute in question.” 2016 WL
11398115, at *12.
18
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Smith refers to the “purpose of the action,” 615 F.2d at 414, the case it
relied upon, Murphy, referred to the “purpose of the statute.” See
Murphy, 560 F.2d at 209. There is no meaningful difference between
these formulations. Notably, other circuits also refer to the “purpose of
the statute.” See, e.g., Malvino v. Delluniversita, 840 F.3d 223, 229 (5th
Cir. 2016); United States v. NEC Corp., 11 F.3d 136, 137 (11th Cir.
1993). Thus the district court properly considered the purpose of the
TSR and the Telemarketing Act.
The Estate’s attempt to distinguish Parchman also falls flat.
Contrary to the Estate’s assertion, the plaintiffs in Parchman did not
allege actual damages. The plaintiffs sought statutory damages of $500
per call—a penalty—for the defendant’s unlawful robocalls, and like the
FTC here they did not seek recovery for any actual pecuniary harm. See
Parchman, 896 F.3d at 731; Amended Complaint at 10, Parchman v.
SLM Corp., No. 2:15-cv-2819 (W.D. Tenn.), ECF 27. The Estate also
argues that Parchman involved a private plaintiff, rather than a
governmental one, but that is irrelevant to the first factor of the Smith
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test, which looks to the purpose of the action rather than the identity of
the plaintiff. 19
Finally, contrary to the Estate’s view, a civil penalty that serves a
deterrent function can still redress wrongs to individuals, such that it is
properly treated as remedial for substitution purposes. See Laidlaw, 528
U.S. at 185-86. As the court explained in Capital City: “While it is true
that some courts have considered that civil penalties can act as a general
deterrent to the public, those courts have also recognized that individual
consumers are protected by the government’s enforcement of consumer
protection statutes.” 321 F. Supp. 2d at 21 (citing Danube Carpet Mills,
737 F.2d at 994). Deterring future violations by both the defendants and
other would-be violators protects individual consumers from harm.
2.
Recovery by the government is not
determinative.
Under the second Smith factor, the fact that recovery runs to the
government rather than individuals weighs in favor of treating an
The Estate’s reliance (Br.13-14) on Hannabury v. Hilton Grand
Vacations Co., 174 F. Supp. 3d 768 (W.D.N.Y. 2016), which considered
the survivability of private TCPA claims, is misplaced because that
decision’s reasoning was later explicitly rejected by the same court,
Sharp v. Ally Financial, Inc., 328 F.Supp.3d 81, 97, 92 (W.D.N.Y. 2018),
and by the Sixth Circuit in Parchman, 896 F.3d at 738.
19
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action as punitive, but as the district court held, this factor is not
determinative. A.17-19. The Estate concedes that “no single factor is
determinative” (Estate Br.17), although it then immediately reverses
course and says that the second factor “appears critical,” citing United
States v. Edwards, 667 F. Supp. 1204, 1215 (W.D. Tenn. 1987). If the
second factor were “critical” or dispositive, however, there would be no
need for a three-part test.
Furthermore, as the district court held, Capital City, is more
closely analogous to this case than Edwards because it involved an
action by the FTC to recover fees for violations of a consumer protection
statute. A19. Capital City held that “payment to the government
‘weighs in favor of characterizing th[e] relief as penal,’” but does not
compel that conclusion where the penalties “derive[]from … social
welfare legislation [that] is remedial.’” Capital City, 321 F. Supp. 2d at
22 (quoting Citronelle-Mobile Gathering, Inc. v. O’Leary, 499 F. Supp.
871, 887 (D. Ala. 1980)). Where a statute is “remedial, not penal, in
nature,” the fact that money will be paid to the government rather than
individual consumers is not enough to make the remedy “penal” for
substitution purposes. Id.
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The Estate’s attempt to distinguish Capital City mischaracterizes
that case’s facts. The FTC was not seeking a penalty for the ECOA
violations “measured by the extra fees [consumers] paid to the
defendant.” Estate Br.18. Rather, the FTC sought penalties based on
the defendants’ failure to take written applications, collect required
information, or properly provide notice of adverse actions. Capital City,
321 F. Supp. 2d at 23; Complaint, FTC v. Capital City Mortg. Corp., No.
98-cv-237 (D.D.C.), ECF-1. The Estate thus has not shown any basis for
distinguishing Capital City’s conclusion that the second factor is not
determinative.
3.
The civil penalty here is not wholly
disproportionate to the harm caused by millions
of unwanted calls.
Under the third Smith factor, authorized recovery that is
disproportionate to the harm suffered weighs in favor of treating an
action as penal. Here, the district court properly focused on the roughly
$28.7 million in civil penalties sought by the FTC after taking into
consideration the factors listed in 15 U.S.C. § 45(m)(1)(C). A.19-21. It
concluded that this amount was not disproportionate to the harm, and
that this factor also weighted in favor of treating the action as remedial.
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A.21-22. That conclusion was also correct. As discussed above, the
precise harm suffered by individual consumers from do-not-call
violations is difficult to quantify, but a penalty of $6.88 per call is
plainly not disproportionate. Indeed, in Parchman, the Sixth Circuit
concluded that a penalty of $500 per illegal call was not
“disproportionate to the harm suffered as a result of receiving these
irritating and invasive calls, especially where the harm is hard to
quantify and may vary significantly from person to person.” 896 F.3d at
740.
The Estate’s argument that the inquiry must focus solely on the
statutory maximum penalty is incorrect. Although the FTC Act places a
statutory cap on civil penalties, courts are not authorized to
automatically award the statutory cap. Rather, they must consider the
five factors set forth in 15 U.S.C. § 45(m)(1)(C) to arrive at an
appropriate penalty within the statutory cap. As discussed above, part
of that inquiry involves making sure that the penalty is not wholly
disproportionate to the harm suffered. The district court correctly found
Parchman instructive on this point as well. A.20. Focusing on the treble
damages provision of the TCPA, the Sixth Circuit emphasized that the
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court had “discretion to decide in each case whether and how much to
increase damages, unlike the provisions in the other statutes which
automatically provide multiple recovery,” and that this discretion
“allows the court to evaluate the facts of a particular case and, perhaps,
the harm caused to the plaintiff by the defendant’s violation in
determining the appropriate level of damages,” suggesting that the
penalty was “more remedial.” Parchman, 896 F.3d at 740. By the same
reasoning, the fact that the FTC Act gives the district court discretion
to determine an appropriate penalty, rather than automatically
imposing the statutory maximum, weighs in favor of finding the
penalties to be remedial.
C.
Equity, If Relevant, Supports Substitution.
The Estate’s final salvo is an appeal to equity. Estate Br.20-21.
Nothing in Smith, or any other case cited by the Estate suggests that
equitable considerations can override the Rule 25 analysis. In any
event, the district court reasonably held that it would not be equitable
to let the Estate off the hook for Cumming’s misconduct because that
would require the other Defendants to shoulder the entire burden of the
civil penalty award. A.23. It considered the Estate’s argument that
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substitution would be unfair because Day Pacer was supposedly
unprofitable, Cumming supposedly invested more than he earned, and
Cumming’s heirs were innocent. But the court viewed the harm to the
Fitzgeralds as outweighing those considerations. A.22-23. To the extent
the court had discretion to consider equitable considerations, it did not
abuse its discretion in reaching this conclusion.
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CONCLUSION
The judgment of the district court should be affirmed.
Respectfully submitted,
ANISHA DASGUPTA
General Counsel
MARIEL GOETZ
Acting Deputy General
Counsel for Litigation
July 9, 2024
/s/ Mark S. Hegedus
MARK S. HEGEDUS
MATTHEW M. HOFFMAN
Attorneys
FEDERAL TRADE COMMISSION
600 Pennsylvania Avenue, N.W.
Washington, D.C. 20580
Of Counsel:
MARK GLASSMAN
PATRICK ROY
Attorneys
FEDERAL TRADE COMMISSION
Washington, D.C. 20580
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CERTIFICATE OF COMPLIANCE
I certify that the foregoing brief complies with Federal Rule of
Appellate Procedure 32(a)(7) and this Court’s June 27, 2024, Order
(Document 32) in that it contains 17,627 words.
July 9, 2024
/s/ Mark S. Hegedus
Mark S. Hegedus
Attorney
Federal Trade Commission
600 Pennsylvania Avenue, N.W.
Washington, D.C. 20580
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.