| DEBRA A. VALENTINE General Counsel TODD M. KOSSOW JOHN JACOBS (CA Bar #134154) Attorneys for Plaintiff UNITED STATES DISTRICT COURT FEDERAL TRADE COMMISSION, v. ARLINGTON PRESS, INC., d/b/a CONSUMER DATA SERVICE, a California
corporation,
COMPLAINT FOR INJUNCTION Plaintiff, the Federal Trade Commission ("FTC" or "Commission"), for its Complaint alleges: 1. The FTC brings this action under sections 13(b) and 19 of the Federal Trade Commission Act ("FTC Act"), 15 U.S.C. §§ 53(b) and 57b, and the Telemarketing and Consumer Fraud and Abuse Prevention Act ("Telemarketing Act"), 15 U.S.C. § 6101 et seq., to secure a permanent injunction, preliminary injunctive relief, rescission of contracts, restitution, disgorgement, appointment of a receiver, and other equitable relief for defendants' deceptive acts or practices in violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a), and the FTC's Trade Regulation Rule entitled "Telemarketing Sales Rule" ("the Telemarketing Rule" or "the Rule"), 16 C.F.R. Part 310. JURISDICTION AND VENUE 2. This court has jurisdiction over this matter pursuant to 15 U.S.C. §§ 45(a), 53(b), 57b, 6102(c), and 6105(b); and 28 U.S.C. §§ 1331, 1337(a), and 1345. 3. Venue in the United States District Court for the Central District of California is proper under 28 U.S.C. §§ 1391(b) and (c), as well as under 15 U.S.C. §§ 53(b) and 6103(e). THE PARTIES 4. Plaintiff, the Federal Trade Commission, is an independent agency of the United States Government created by statute. 15 U.S.C. § 41 et seq. The Commission is charged, inter alia, with enforcement of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a), which prohibits unfair or deceptive acts or practices in or affecting commerce. The Commission also enforces the Telemarketing Rule, 16 C.F.R. Part 310, which prohibits deceptive or abusive telemarketing acts or practices. The Commission is authorized to initiate federal district court proceedings, by its own attorneys, to enjoin violations of the FTC Act and the Telemarketing Rule and to secure such equitable relief as is appropriate in each case, including restitution for injured consumers. 15 U.S.C. §§ 53(b), 57b, 6102(c) and 6105(b). 5. Defendant Arlington Press, Inc. ("Arlington") is a California corporation that conducts business under the name Consumer Data Service. Arlington's principal place of business is located at 5582-A Calle Real, Santa Barbara, California 93111. Arlington transacts business in the Central District of California. 6. Defendant David T. Umholtz is an officer and director of Arlington. At all times material to this complaint, acting alone or in concert with others, he has formulated, directed, controlled, or participated in the acts and practices of the corporate defendant, including the acts and practices set forth in this complaint. He resides and transacts business in the Central District of California. 7. Defendant Wendy J. Foster is an officer and director of Arlington. At all times material to this complaint, acting alone or in concert with others, she has formulated, directed, controlled, or participated in the acts and practices of the corporate defendant, including the acts and practices set forth in this complaint. She transacts business and resides in the Central District of California. COMMERCE 8. At all times material to this complaint, defendants have maintained a substantial course of trade in or affecting commerce, as "commerce" is defined in Section 4 of the FTC Act, 15 U.S.C. § 44. DEFENDANTS' COURSE OF CONDUCT 9. Since at least May 1996, defendants have advertised and telemarketed "how to" guides to consumers throughout the United States. 10. In the course of advertising and telemarketing its "how to" guides, defendants have disseminated or have caused the dissemination of flyers throughout the United States, via direct mailings sent by coupon companies, that advertise to consumers current local listings of government seized cars. 11. The centerpiece of these flyers is a photograph of a shiny automobile, in most cases a red Ford Mustang, but on occasion a Ferrari along with two Jaguars. The types of claims made on the flyers include but are not limited to the following:
12. Consumers who call the toll-free telephone number provided on the flyers are connected to defendants' sales representatives, who inform consumers that the listing information advertised on the flyers sells for $59.00. 13. The sales representatives typically reiterate the claim made on the flyer -- that government seized vehicles in good condition can be purchased by the public at prices substantially below their wholesale values, including as little as $200. 14. Defendants' sales representatives typically also represent that defendants will provide consumers with listings of actual vehicles that are available for purchase at auctions in the consumers' area. 15. Consumers who agree to purchase the current local listings of seized cars are asked to provide the sales representatives with their credit card or checking account numbers, and the $59.00 cost of the materials is then charged or debited to those accounts. 16. Shortly thereafter, defendants ship to consumers two publications -- the first entitled "Consumer's Guide to Government Auctions" and the second "Consumer's Listings of Government Auctions." Neither publication includes the current listings of actual vehicles that are available for purchase at auctions in the consumers' area. The publications instead provide only a list of public and private entities that regularly hold auctions. 17. In the course of advertising and telemarketing its "how to" guides, defendants also have disseminated or have caused the dissemination of flyers throughout the United States, via direct mailings sent by coupon companies, that advertise to consumers current local listings of government foreclosed homes. 18. The centerpiece of these flyers is a photograph of a well-maintained home with a neatly landscaped yard fronted by a white picket fence. A banner across one corner of the photograph reads "YOUR AREA." The types of claims made on the flyers include but are not limited to the following:
19. Consumers who call the toll-free telephone number provided on the flyers are connected to defendants' sales representatives, who inform consumers that the listing information advertised on the flyers sells for $68.90. 20. The sales representatives typically reiterate the claim made on the flyer -- that government foreclosed homes in good condition can be purchased by the public at prices substantially below their market values. 21. Defendants' sales representatives typically also represent that defendants will provide consumers with listings of actual homes available for purchase in the consumers' area. 22. Consumers who agree to purchase the current local listings of foreclosed homes are asked to provide the sales representatives with their credit card or checking account numbers, and the $68.90 cost of the materials is then charged or debited to those accounts. 23. Shortly thereafter, defendants ship to consumers two publications -- the first entitled "Home Buyer's Guide to Foreclosed Real Estate" and the second "Home Buyer's Listings of Foreclosed Real Estate." In numerous cases, neither publication contains the current listings of actual homes available for purchase in the consumer's area that had been promised. 24. In the course of advertising and telemarketing its "how to" guides, defendants also have disseminated or have caused the dissemination of advertisements in the classified sections of national and local newspapers and magazines, including but not limited to the following:
25. Consumers who call the toll-free telephone number provided in the advertisements are connected to defendants' sales representatives, who inform consumers that the listing information sells for $59.95. 26. The sales representatives also typically represent that defendants will provide consumers with a list of actual positions that currently are available with government agencies in the consumers' area, along with the names of individuals to contact about such positions. 27. Consumers who agree to purchase the government jobs list are asked to provide the sales representatives with their credit card or checking account numbers, and the $59.95 cost of the materials is then charged or debited to those accounts. 28. Shortly thereafter, defendants ship to consumers two publications -- the first entitled "Careers 2000 Guide" and the second "Careers 2000 Listings." Neither publication includes a list of actual positions that currently are available with government agencies in the consumers' area, along with the names of individuals to contact about such positions. Consumers are instead provided only with a list of the names, addresses, and telephone numbers of government agencies, and that list makes no mention of any jobs that currently are available with the government agencies, or of individuals to contact about such jobs. 29. In the course of advertising and telemarketing its "how to" guides, defendants also have disseminated or have caused the dissemination of advertisements in the classified sections of national and local newspapers and magazines, including but not limited to the following:
30. Consumers who call the toll-free telephone number provided in the advertisements are connected to defendants' sales representatives, who inform consumers that the typing information sells for $59.95. 31. The sales representatives also typically represent that defendants will provide consumers with a list of companies in the consumers' area that currently are seeking at-home typists, along with the name of an individual to contact at each company, and a listing of the types of work the company has available for at-home typists. 32. Consumers who agree to purchase the at-home typing list are asked to provide the sales representatives with their credit card or checking account numbers, and the $59.95 cost of the materials is charged or debited to those accounts. 33. Shortly thereafter, defendants ship to consumers two publications -- the first entitled "Careers 2000 Guide" and the second "Careers 2000 Listings." Neither publication includes a list of companies in the consumer's area that currently are seeking at-home typists, along with the name of an individual to contact at each company, and a listing of the types of work the company has available for at-home typists. Consumers are instead provided only with a list of the types of companies that may benefit from the use of at-home typists. 34. In the course of advertising and telemarketing defendants' "how to" guides, sales representatives frequently inform consumers who have called about a particular program -- the seized cars for example -- that defendants also have other programs. Defendants' sales representatives offer to send one or more of those additional programs along with the program the consumer has ordered. In many cases, however, defendants' sales representatives fail to disclose that there is an additional charge for the other programs. 35. Although consumers have authorized charges or debits to their credit card or checking accounts to cover the cost of the program they ordered, consumers learn only later that defendants have charged them for the additional programs as well, meaning that their accounts were charged or debited in an amount two or three times what they expected. 36. In the course of advertising and telemarketing defendants' "how to" guides, sales representatives frequently represent to consumers that they may return the guides for a full refund if they are not completely satisfied. Sales representatives also sometimes tell consumers that there is a 90-day trial period or that the consumers should try the materials out for 90 days. 37. Consumers learn only after receiving the defendants' "how-to" guides that defendants will not even consider issuing a refund unless the consumer has used the guides for at least 90 days. Defendants ship to the consumer along with their guides a copy of their "guarantee," which provides in pertinent part as follows:
(emphasis in original.) These conditions on the receipt of a refund are not clearly and conspicuously disclosed to consumers when they place their orders. 38. The effect of the refund conditions announced for the first time when the materials are delivered to consumers is to discourage consumers from seeking refunds. Defendants' actual practice, however, is to provide refunds to any consumer who submits a formal complaint to the Better Business Bureau or to a law enforcement agency, and who returns defendants' guides in resellable condition. VIOLATIONS OF SECTION 5 OF THE FTC ACT COUNT ONE 39. In numerous instances, in the course of offering for sale or selling their government auction guides, defendants have represented, expressly or by implication, that consumers who purchase their publications on seized cars frequently are able to purchase vehicles in good condition for a fraction of their wholesale values, including as little as $200. 40. In truth and in fact, consumers who purchase defendants' publications on seized cars rarely, if ever, are able to purchase vehicles in good condition for a fraction of their wholesale values, including as little as $200. Indeed, while agencies such as the United States Marshals and the United States Customs Service do regularly seize vehicles, including vehicles in good condition, they rarely, if ever, sell those vehicles to the general public at prices substantially below their wholesale values. 41. Therefore, the representation set forth in Paragraph 39 was, and is, false and misleading and constitutes a deceptive act or practice in violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a). COUNT TWO 42. Defendants have represented, expressly or by implication, that they possessed and relied upon a reasonable basis that substantiated the representation set forth in Paragraph 39, at the time the representation was made. 43. In truth and in fact, defendants did not possess and rely upon a reasonable basis that substantiated the representation set forth in Paragraph 39, at the time the representation was made. 44. Therefore, the representation set forth in Paragraph 39 was, and is, false and misleading and constitutes a deceptive act or practice in violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a). COUNT THREE 45. In numerous instances, in the course of offering for sale or selling their foreclosed homes guides, defendants have represented, expressly or by implication, that consumers who purchase their publications on foreclosed homes frequently are able to purchase foreclosed homes in reasonably good condition for substantially below their market values. 46. In truth and in fact, consumers who purchase defendants' publications on foreclosed homes rarely, if ever, are able to purchase foreclosed homes in reasonably good condition for substantially below their market values. Indeed, entities such as the Department of Housing and Urban Development ("HUD"), Fannie Mae, and Freddie Mac that regularly foreclose on well-kept homes that are in good condition rarely, if ever, sell those homes to the general public at prices substantially below their market values. 47. Therefore, the representation set forth in Paragraph 45 was, and is, false and misleading and constitutes a deceptive act or practice in violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a). COUNT FOUR 48. Defendants have represented, expressly or by implication, that they possessed and relied upon a reasonable basis that substantiated the representation set forth in Paragraph 45, at the time the representation was made. 49. In truth and in fact, defendants did not possess and rely upon a reasonable basis that substantiated the representation set forth in Paragraph 45, at the time the representation was made. 50. Therefore, the representation set forth in Paragraph 45 was, and is, false and misleading and constitutes a deceptive act or practice in violation of Section 5 of the FTC Act, 15 U.S.C. § 45. COUNT FIVE 51. In numerous instances, in the course of offering for sale or selling their at-home typing guides, defendants have represented, expressly or by implication, that consumers who purchase their guides will receive listings of businesses currently seeking to hire individuals to type at home for such businesses, along with the names of individuals to contact about those jobs. 52. In truth and in fact, in numerous instances, consumers who purchase defendants' at-home typing guides do not receive listings of businesses currently seeking to hire individuals to type at home for such businesses, along with the names of individuals to contact about those jobs. They instead receive only a list of the types of companies that may benefit from the use of at-home typists. 53. Therefore, the representation set forth in Paragraph 51 was, and is, false and misleading and constitutes a deceptive act or practice in violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a). COUNT SIX 54. In numerous instances, in the course of offering for sale or selling their government jobs guides, defendants have represented, expressly or by implication, that consumers who purchase their guides will receive listings of actual positions that government agencies currently are seeking to fill, along with the names of individuals to contact about those positions. 55. In truth and in fact, in numerous instances, consumers who purchase defendants' government jobs guides do not receive listings of actual positions that government agencies currently are seeking to fill, along with the names of individuals to contact about those positions. They instead receive only a list of the names, addresses, and telephone numbers of government agencies, with no mention of any jobs that currently are available with those agencies, or of individuals to contact about such jobs. 56. Therefore, the representation set forth in Paragraph 54 was, and is, false and misleading and constitutes a deceptive act or practice in violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a). COUNT SEVEN 57. In numerous instances, in the course of offering for sale or selling their "how to" guides, defendants have represented, expressly or by implication, that they will send consumers a single guide and that the cost of the product will be charged to consumers' checking or credit card accounts. 58. Defendants have failed to disclose that in truth and in fact, they send consumers additional guides, such as a foreclosed home guide when the consumer has ordered only a seized car guide, and that defendants charge consumers' checking or credit card accounts for these additional guides. This fact would be material to consumers in their decisions to purchase defendants' products. 59. In light of the representation made in Paragraph 57, above, the failure to disclose that defendants make an additional charge to consumers' checking or credit card accounts is a deceptive act or practice in violation of Section 5 of the FTC Act, 15 U.S.C. § 45. COUNT EIGHT 60. In numerous instances, in the course of offering for sale or selling their "how to" guides, defendants have represented, expressly or by implication, that they will provide refunds to consumers upon request. 61. In truth and in fact, defendants have failed to disclose that they impose additional refund restrictions that discourage consumers from seeking refunds or restrict the availability of refunds, including, for example, the conditions that consumers use the materials for at least ninety days and then return the "how to" guides in resellable condition with a return authorization number. These conditions would be material to consumers in their decisions to purchase defendants' products and to dissatisfied consumers in their decisions to seek refunds. 62. In light of the representation made in Paragraph 60, above, the failure to disclose that defendants will communicate and impose additional refund conditions is a deceptive act or practice in violation of Section 5 of the FTC Act, 15 U.S.C. § 45. THE TELEMARKETING RULE 63. In the Telemarketing and Consumer Fraud and Abuse Prevention Act, 15 U.S.C. §§ 6101, et seq., Congress directed the FTC to prescribe rules prohibiting deceptive and abusive telemarketing acts or practices. On August 16, 1995, the Commission promulgated the Telemarketing Sales Rule ("Telemarketing Rule" or "the Rule"), 16 C.F.R. Part 310, with a Statement of Basis and Purpose, 60 Fed. Reg. 43842 (Aug. 23, 1995). The Rule became effective December 31, 1995. 64. Defendants are "sellers" or "telemarketers" engaged in "telemarketing," as those terms are defined in the Telemarketing Rule, 16 C.F.R. §§ 310.2(r), (t), and (u). 65. Telephone calls initiated by a customer in response to direct mail solicitations are covered by the Rule when the direct mail solicitations do not clearly, conspicuously, and truthfully disclose all material information listed in § 310.3(a)(1) of the Rule, 16 C.F.R. §310.6(f), including the total costs to purchase, receive, or use, and the quantity of, any goods or services that are the subject of the sales offer; and all material restrictions, limitations, or conditions to purchase, receive, or use the goods that are the subject of the sales offer. 16 C.F.R. § 310.3(a)(1). 66. Defendants' direct mail solicitations do not include any of the material information described in § 310.3(a)(1) of the Rule or in Paragraph 65. 67. The Rule requires sellers or telemarketers to disclose, in a clear and conspicuous manner, before a customer pays for goods or services offered, the total costs to purchase, receive, or use, and the quantity of, any goods or services that are the subject of the sales offer. 16 C.F.R. § 310.3(a)(1)(i). 68. The Rule also requires sellers or telemarketers who make representations about their refund, cancellation, exchange, or repurchase policies to disclose, in a clear and conspicuous manner, before a customer pays for goods or services offered, a statement of all material terms and conditions of the seller's or telemarketer's refund, cancellation, exchange, or repurchase policy. 16 C.F.R. § 310.3(a)(1)(iii). 69. The Rule also prohibits any seller or telemarketer from making a false or misleading statement to induce any person to pay for goods or services. 16 C.F.R. § 310.3(a)(4). 70. Pursuant to Section 3(c) of the Telemarketing Act, 15 U.S.C. § 6102(c), and Section 18(d)(3) of the FTC Act, 15 U.S.C. § 57a(d)(3), violations of the Telemarketing Rule constitute unfair or deceptive acts or practices in or affecting commerce, in violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a). COUNT NINE 71. In numerous instances, in connection with telemarketing offers of government auction and foreclosed home guides, defendants have made false or misleading statements to induce the purchase of their guides that include, but are not limited to, statements that:
thereby violating Section 310.3(a)(4) of the Telemarketing Sales Rule, 16 C.F.R. § 310.3(a)(4). COUNT TEN 72. In numerous instances, in connection with telemarketing offers of government auction and foreclosed home guides, defendants have failed to disclose in a clear and conspicuous manner, before consumers paid for the product, that they will send additional products to consumers and will charge consumers' checking or credit card accounts for amounts above those that consumers had agreed to pay, thereby violating Section 310.3(a)(1)(i) of the Telemarketing Sales Rule, 16 C.F.R. § 310.3(a)(1)(i). COUNT ELEVEN 73. In numerous instances, in connection with telemarketing offers of their government auction and foreclosed home guides, defendants have made representations about their refund policy but have failed to disclose in a clear and conspicuous manner, before consumers paid for the product, that they impose conditions that discourage consumers from seeking refunds or restrict the availability of refunds, thereby violating Section 310.3(a)(1)(iii) of the Telemarketing Sales Rule, 16 C.F.R. § 310.3(a)(1)(iii). CONSUMER INJURY 74. Consumers throughout the United States have suffered and continue to suffer substantial monetary loss as a result of defendants' unlawful acts or practices. In addition, defendants have been unjustly enriched as a result of their unlawful practices. Absent injunctive relief by this Court, defendants are likely to continue to injure consumers, reap unjust enrichment, and harm the public interest. THIS COURT'S POWER TO GRANT RELIEF 75. Section 13(b) of the FTC Act, 15 U.S.C. § 53(b), empowers this Court to grant injunctive and other ancillary relief, including consumer redress, disgorgement, and restitution to prevent and remedy any violations of any provision of law enforced by the Commission. 76. Section 19 of the FTC Act, 15 U.S.C. § 57b, and Section 6(b) of the Telemarketing Act, 15 U.S.C. § 6105(b), authorize this Court to grant such relief as the Court finds necessary to redress injury to consumers or other persons resulting from defendants' violations of the Telemarketing Rule, including the rescission and reformation of contracts, and the refund of monies. 77. This Court, in the exercise of its equitable jurisdiction, may award other ancillary relief to remedy injury caused by defendants' law violations. PRAYER FOR RELIEF WHEREFORE, plaintiff, the Federal Trade Commission, requests that this Court, as authorized by Sections 13(b) and 19 of the FTC Act, 15 U.S.C. §§ 53(b) and 57b, Sections 4(a) and 6(b) of the Telemarketing Act, 15 U.S.C. §§ 6103(a) and 6105(b), and pursuant to its own equitable powers:
Respectfully Submitted, DEBRA A. VALENTINE DATED: __________________ __________________________ JOHN JACOBS (CA Bar #134154) |