391 F. Supp. 3d 1218
N.D. Ga.2019Background
- The FTC filed a Second Amended Complaint against three groups of defendants (Hornbeam entities and individuals; EDP entities and individuals; iStream and two individuals) alleging a scheme to obtain subprime customers' bank information and make unauthorized debits for online coupons from 2010–2016.
- FTC alleges EDP operated the scheme until 2013, sold it to Hornbeam, which continued it until mid-2016; iStream provided payment processing despite knowledge of high return rates and complaints.
- FTC points to prior government and state actions: prior FTC contempt findings against EDP, state settlements, and continued similar conduct after those interventions.
- Complaint alleges Hornbeam and associates took active steps to conceal high return rates (fake transactions, seeking new banks) and continued operations despite knowledge and scrutiny.
- FTC asserts these facts show ongoing or imminently recurring violations such that preliminary injunctive relief under 15 U.S.C. § 53(b) is warranted; defendants moved to dismiss for failure to plead an "about to violate" claim.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Pleading requirement under 15 U.S.C. § 53(b) | FTC argues § 53(b)'s "reason to believe" is an internal standard and Complaint alleges facts showing ongoing or imminent violations | Defendants say FTC only alleges past misconduct and must plead a current or imminent violation to proceed under § 53(b) | Court denied dismissal: FTC pleaded sufficiently to infer defendants were violating or about to violate the law based on repeated conduct and concealment tactics |
| Applicability of Third Circuit's Shire ViroPharma decision | FTC distinguishes Shire and insists its internal-standard argument and facts show a reason to believe imminent violations | Defendants rely on Shire to argue dismissal because Shire requires pleading current or impending violations | Court distinguished Shire: accepted internal-standard argument and found FTC's factual allegations adequate at pleading stage |
| Certification for interlocutory appeal and stay | FTC did not oppose immediate appeal; court evaluated §1292(b) factors | Defendants sought leave to appeal the denial of their motions to dismiss | Court certified interlocutory appeal under 28 U.S.C. §1292(b), granted leave to appeal, and stayed the case pending appeal |
| Pleading standard (Rule 8 / Twombly-Iqbal) | FTC contends complaint meets Rule 8/Twombly/Iqbal by pleading facts supporting plausible future misconduct | Defendants argue allegations are conclusory and insufficient under Twombly/Iqbal | Court applied Twombly/Iqbal, found well-pleaded factual allegations plausible, and denied motions to dismiss |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (defines plausibility standard under Rule 8) (quoted and applied on pleading review)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (articulates requirement that complaint plead facts rendering claim plausible)
- FTC v. Shire ViroPharma, 917 F.3d 147 (3d Cir. 2019) (held FTC must plead current or impending violation to proceed under § 53(b); discussed and distinguished)
- Standard Oil Co. of Cal. v. FTC, 596 F.2d 1381 (9th Cir. 1979) (authority discussing preliminary relief and FTC powers referenced)
- Chaparro v. Carnival Corp., 693 F.3d 1333 (11th Cir. 2012) (discusses Rule 8 pleading requirements)
- McFarlin v. Conseco Servs., LLC, 381 F.3d 1251 (11th Cir. 2004) (sets factors for interlocutory appeal under 28 U.S.C. § 1292(b))