325 F. Supp. 3d 852
N.D. Ill.2018Background
- CBC (Credit Bureau Center, LLC), owned and operated by Michael Brown, ran websites (e.g., CreditUpdates.com, FreeCreditNation.com, eFreeScore.com) offering a “free credit score and report” but enrolling consumers in a $29.94/month credit monitoring membership via small disclosures.
- Affiliate marketers Danny Pierce and Andrew Lloyd ran a Craigslist scheme posting fake rental listings; interested renters were directed to CBC sites to obtain a credit report and then were not connected to any landlord.
- Pierce generated ~2.74 million visitors and $6.8 million in revenue for CBC; the campaign generated thousands of consumer complaints and over 10,000 chargebacks.
- FTC sued, alleging violations of the FTCA (15 U.S.C. § 45), ROSCA (15 U.S.C. § 8403), and the Free Credit Report Rule; Pierce and Lloyd agreed to preliminary injunctions and CBC/Brown were preliminarily enjoined in 2017.
- On cross-motions for summary judgment, the court found defendants’ LR 56.1 responses inadequate and deemed many FTC factual statements admitted.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Craigslist marketing deceptive under FTCA | Craigslist ads and landlord emails were material misrepresentations that induced sign-ups | Affiliates acted independently; defendants lacked agency or ratification | Court: campaign was materially deceptive; CBC ratified affiliates by accepting benefits despite complaints; summary judgment for FTC |
| CBC website deceptive under FTCA | Net impression promised a "free credit score and report" and obscured the $29.94/month negative-option membership | Disclosures (small text, processing fee paragraph) cured any deception | Court: overall net impression was deceptively free; small disclosures insufficient; summary judgment for FTC |
| ROSCA (negative option) | Disclosures not clear and conspicuous; lacked express informed consent | Disclosures across landing, payment, and welcome email suffice; relied on similar consent-decree site | Court: disclosures were buried/insufficient; express informed consent not obtained; summary judgment for FTC |
| Free Credit Report Rule | Advertising “free credit score and report” triggers rule requiring disclosure of free annual report under federal law | Formatting/coloring or bundling with other services excludes the Rule; FTC must issue cease-and-desist first | Court: reasonable consumer reads “free” to modify both score and report; bundles fall within Rule; summary judgment for FTC |
| Brown's personal liability | Brown authored/edited sites, received complaints, controlled affiliate traffic — had knowledge and control | Brown claims lack of specific knowledge and reliance on affiliates; some complaints were "friendly fraud" | Court: Brown had actual/constructive knowledge and control; personally liable; summary judgment for FTC |
| Injunctive and equitable monetary relief | Permanent injunction and consumer-loss restitution appropriate; restitution traceable under FTCA | Section 13(b) limits, tracing/commingling, excessive fines, calculation disputes | Court: injunction granted; equitable monetary relief (consumer loss) awarded; tracing rule for ERISA inapplicable to §13(b); Eighth Amendment and set-offs rejected |
Key Cases Cited
- FTC v. Bay Area Bus. Council, Inc., 423 F.3d 627 (7th Cir.) (corporate and individual liability under FTC Act; knowledge/reckless indifference standards)
- Cyberspace.Com LLC v. FTC, 453 F.3d 1196 (9th Cir.) (net-impression standard and materiality for deceptive internet advertising)
- Amy Travel Serv., Inc. v. FTC, 875 F.2d 564 (7th Cir.) (materiality and individual liability principles under FTC Act)
- World Travel Vacation Brokers, Inc. v. FTC, 861 F.2d 1020 (7th Cir.) (agency/principal liability for agents' misrepresentations)
- FTC v. Trudeau, 579 F.3d 754 (7th Cir.) (authority to order consumer redress under FTC enforcement)
- FTC v. Febre, 128 F.3d 530 (7th Cir.) (equitable ancillary relief and restitution as remedial power of district courts)