State of Iowa Ex Rel. Thomas J. Miller, Attorney General for Iowa v. Vertrue, Incorporated F/K/A Memberworks, Inc., a Delaware Corporation Adaptive Marketing, LLC, a Delaware Limited Liability Company Idaptive Marketing, LLC, a Delaware Limited Liability Company
834 N.W.2d 12
Iowa2013Background
- Vertrue sells buying club memberships, often bundling multiple discounts and ancillary programs under one membership.
- Iowa AG sued Vertrue and affiliates for violations of the Buying Club Membership Law (BCL) and the Iowa Consumer Fraud Act (CFA), plus penalties for elderly-related CFA violations.
- The district court held that the BCL applies to Vertrue’s mail, telephone, and Internet solicitations and that these practices violated the BCL and CFA; it also found no CFA penalties for elderly violations and awarded substantial restitution, civil penalties, and fees.
- The district court denied reimbursement for some CFA remedies and concluded a reliance-based showing was required for BCL reimbursements; on appeal, the Iowa Supreme Court reversed in part and modified remedies.
- The court ultimately affirmed BCL applicability to non-in-person solicitations, upheld some CFA findings, reversed the need for reliance/damage proof for BCL reimbursements, reversed the district court’s exclusion of financial/privacy/health programs from BCL coverage, and increased civil penalties for elderly-targeted conduct.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Scope of BCL reach (552A.3) | State argues DDSA-like notice applies to all sale modes. | Vertrue contends 552A.3 only covers in-person sales. | 552A.3 applies DDSA-like notice irrespective of sale mode. |
| Dormant Commerce Clause | State asserts benefits outweigh incidental burdens. | Vertrue contends discrimination against out-of-state sellers. | 552A.3 does not violate dormant Commerce Clause; burden is incidental and justified. |
| BCL applicability to financial/privacy/health programs | All discount features subject to BCL; coverage should be broad. | Programs lacking primary discount purpose should be excluded. | BCL covers Vertrue’s financial, privacy, and health programs that include discount features. |
| Remedies under CFA and 714.16(7) | State may seek CFA remedies for BCL violations without extra elements; 714.16(7) applies to concealment claims. | Extra common-law fraud elements required for reimbursement under 714.16(7). | State entitled to full BCL reimbursement without reliance proof for these violations; 714.16(7) clarified but not extended to all CFA recoveries. |
| Elderly penalties under 714.16A | State seeks enhanced penalties for elderly-targeted conduct. | No proof of targeted conduct required; prior rulings suffice. | State entitled to civil penalties for elderly-related CFA/BCL violations; total penalties increased. |
Key Cases Cited
- Minnesota v. Clover Leaf Creamery Co., 449 U.S. 456 (1981) (dormant Commerce Clause, non-discrimination principles)
- Pike v. Bruce Church, Inc., 397 U.S. 137 (1970) (balancing local benefits against burdens on interstate commerce)
- Brown-Forman Distillers Corp. v. N.Y. State Liquor Auth., 476 U.S. 573 (1986) (state regulation with legitimate local benefits may survive if burden is not excessive)
- SPGGC, LLC v. Blumenthal, 505 F.3d 183 (2d Cir. 2007) (dormant Commerce Clause and consumer-protection balancing)