Federal Trade Commission v. Grant Connect, LLC
2014 U.S. App. LEXIS 15760
9th Cir.2014Background
- Kimoto appeals district court’s grant of summary judgment for FTC and permanent injunction with restitution against him; Vertek is his wholly controlled entity; district court found Vertek violated the FTC Act via deceptive advertising and Kimoto personally involved or recklessly indifferent; court held Kimoto liable for injunctive relief and restitution for several schemes; Acai Total Burn scheme found not proven to be Vertek-controlled at time of development; EFTA liability asserted; injunction challenged as overbroad.
- Vertek’s schemes include Line of Credit, Grant Connect, Work From Home, and Acai Total Burn, all using deceptive advertising, hidden upsells, and burdensome cancellations.
- Kimoto argues insufficient evidence of personal involvement, that some campaigns launched after his incarceration, and that EFTA liability and the injunction scope are improper.
- Court applies knowledge/participation standard for individual liability under FTC Act for corporate violations; finds Kimoto personally liable for Line of Credit, Grant Connect, and Work From Home schemes, but not for Acai Total Burn; also holds EFTA liability as applicable and upholds most of the injunction’s scope.
- Court remands to modify injunction and restitution related to Acai Total Burn; affirms in part the district court’s summary judgment for FTC and vacates in part as to Acai Total Burn.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Kimoto is personally liable for injunctive relief and restitution | FTC argues Kimoto controlled Vertek and knew or was recklessly indifferent to deception | Kimoto argues lack of personal involvement and post-incarceration timing | Kimoto personally liable for Line of Credit, Grant Connect, Work From Home; not liable for Acai Total Burn |
| Whether Kimoto is liable under the EFTA for Vertek’s acts | EFTA violations deemed violations of the FTC Act; individual liability allowed | No individual liability for corporate EFTA violations | Kimoto liable for Vertek’s EFTA violations |
| Scope and tailoring of the injunction | Injunction appropriately covers deceptive marketing to prevent future harm | Injunction overly broad, including testimonials and broad electronic transfers | Injunction upheld as tailored to prevent similar practices; Acai Total Burn-related injunction vacated and remanded for modification |
| Acai Total Burn scheme liability | Vertek’s Acai Total Burn violated FTC Act | Kimoto not involved in Acai scheme at time of development | Affirmed for other schemes; vacated part regarding Acai Total Burn |
Key Cases Cited
- FTC v. Pub. Clearing House, Inc., 104 F.3d 1168 (9th Cir. 1997) (personal liability requires knowledge or awareness of fraud; participation suffices)
- FTC v. Affordable Media, LLC, 179 F.3d 1228 (9th Cir. 1999) (extent of involvement suffices for liability; knowledge standard)
- FTC v. Cyberspace.Com, LLC, 453 F.3d 1196 (9th Cir. 2006) (no valid defense in reliance on counsel for knowledge of wrongdoing)
- Amy Travel, Ltd. v. FTC, 875 F.2d 574 (7th Cir. 1989) (individuals liable for participating in deceptive schemes)
- Colgate-Palmolive Co. v. Fed. Trade Comm., 380 U.S. 374 (1965) (scope of injunction may be broader than precise violation to prevent future harm)
- FTC v. Ruberoid Co., 343 U.S. 470 (1952) (fencing in prohibited practices)
- FTC v. Nat’l Lead Co., 352 U.S. 419 (1957) (foreseeable future prohibition standards)