Federal Trade Commission v. Discountmetalbrokers, Inc.
2:16-cv-02112
C.D. Cal.Oct 4, 2017Background
- DiscountMetalBrokers, Inc. (DGB) sold gold and silver via TV, radio, and online ads from 2008–2014; Donald and Katherina Dayer were corporate officers who controlled advertising, accounts, and corporate finances.
- Advertisements promised purchases ("zero percent above dealer cost") but did not disclose shipping timeframes or possible delays; customers paid deposits and then balances by wire/check.
- Confirmation emails and website estimated 2–4 week delivery, but many orders shipped after 30 days or were never shipped; DGB frequently refused refunds and kept poor business/shipping records.
- From 2012–2014 DGB received ~$39.27 million and paid ~$32.74 million to suppliers; many consumers suffered substantial losses.
- FTC sued under Section 5(a) of the FTC Act and the Mail, Internet, or Telephone Order Merchandise Rule; FTC moved for summary judgment against the Dayers (unopposed).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether DGB violated Section 5(a) (deceptive acts) | Ads created net impression consumers would receive goods timely; DGB lacked basis to substantiate delivery representations | (No opposition) | Judgment for FTC — DGB made material, likely-to-mislead representations in violation of §5(a) |
| Whether DGB violated the Merchandise Rule (16 C.F.R. Part 435) | DGB lacked reasonable basis to ship within 30 days and failed to offer refunds/consent options; poor records create rebuttable presumption | (No opposition) | Judgment for FTC — DGB violated the Merchandise Rule; rebuttable presumptions apply |
| Whether the Dayers are individually liable for corporate violations | Dayers controlled advertising, signed corporate documents, controlled funds, and were recklessly indifferent to complaints and Berman’s conduct | (No opposition) | Judgment for FTC — Dayers personally liable for injunctive relief and equitable monetary relief (knowledge/reckless indifference established) |
| Remedy: permanent injunction and monetary restitution amount | Permanent injunction needed to prevent recurring violations; restitution of unjust gains of $6,526,559 approximates defendant gains (FTC calculation) | (No opposition) | Granted: permanent injunction (bar marketing investments and further FTC/Merchandise Rule violations); restitution ordered $6,526,559 |
Key Cases Cited
- Scott v. Harris, 550 U.S. 372 (legal standard for viewing facts in light most favorable to nonmoving party)
- Anderson v. Liberty Lobby, 477 U.S. 242 (summary judgment: genuine issue of material fact standard)
- Thornhill Publ’g Co. v. Gen. Tel. & Elec. Corp., 594 F.2d 730 (9th Cir.) (conclusory affidavit evidence insufficient to defeat summary judgment)
- Addisu v. Fred Meyer, 198 F.3d 1130 (9th Cir.) (more than a scintilla of contradictory evidence required to survive summary judgment)
- Stefanchik v. [Defendant], 559 F.3d 924 (9th Cir.) (reckless indifference standard for mens rea in FTC actions)
- Cyberspace.com LLC v. F.T.C., 453 F.3d 1196 (9th Cir.) (advertisement’s net impression can be deceptive)
- Pantron I Corp. v. F.T.C., 33 F.3d 1088 (9th Cir.) (reasonable basis/substantiation required for advertising claims)
- F.T.C. v. Grant Connect, LLC, 763 F.3d 1094 (9th Cir.) (standards for individual liability and knowledge for equitable relief)
- Publ’g Clearing House, Inc. v. F.T.C., 104 F.3d 1168 (9th Cir.) (officer control and participation support individual liability)
- Amy Travel Serv., Inc. v. F.T.C., 875 F.2d 564 (7th Cir.) (individual participation/control support liability)
- F.T.C. v. Commerce Planet, Inc., 815 F.3d 593 (9th Cir.) (two-step framework for restitution under §13(b))