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Federal Trade Commission v. WV Universal Management, LLC

United States Court of Appeals, Eleventh Circuit

December 13, 2017

WV UNIVERSAL MANAGEMENT, LLC, a Florida limited liability company, d.b.a. Treasure Your Success, et al., Defendants, UNIVERSAL PROCESSING SERVICES OF WISCONSIN, LLC, a New York limited liability company, d.b.a. Newtek Merchant Solutions, Defendant-Appellant.

         Appeal from the United States District Court for the Middle District of Florida D.C. Docket No. 6:12-cv-01618-ACC-KRS

          Before ED CARNES, Chief Judge, BLACK, Circuit Judge, and MAY, [*] District Judge.

          BLACK, Circuit Judge:

         The Telemarketing Sales Rule (TSR), 16 C.F.R. § 310.1 et seq., promulgated by the Federal Trade Commission (FTC), prohibits certain deceptive and abusive telemarketing practices. It also makes assisting and facilitating a TSR violation unlawful. Id. § 310.3(b). In 2011 and 2012, a number of individuals and closely held corporations known as Treasure Your Success (TYS) operated a fraudulent credit card interest reduction scheme. Universal Processing Services of Wisconsin, LLC (Universal) violated the TSR by providing substantial assistance to the TYS schemers. At this stage in the litigation, only the extent-but not the fact-of Universal's liability is in dispute. The district court held Universal jointly and severally liable with the members of the TYS scheme; Universal contests that judgment, and the FTC defends it. The sole issue before us is whether joint and several liability was available as a matter of law, and we hold that it was. Accordingly, we affirm.

          I. BACKGROUND

         TYS's brief but active existence began in November 2011.[1] Operating out of Winter Park, Florida, Willy Plancher, Valbona Toska, and Jonathon Warren, together with a handful of corporate entities they controlled, conceived and operated TYS to extract payments from consumers in exchange for fraudulent credit card interest reduction services. The scheme operated roughly as follows. TYS would cause automated calls to be made to consumers informing them that they could lower their credit card interest rates by dialing the number one. Any call recipient who did so would be transferred to a series of live TYS representatives. The sales agents would "promis[e] . . . the world, " albeit in an intentionally confusing manner, in order to persuade the consumer to divulge his or her credit card number. Agents were instructed to represent that by authorizing TYS to charge between $600 and $1000 to the consumer's credit card, the consumer would be entitled to receive $2500 or more in credit card interest rate reductions. Of course, TYS did not have the ability to make good on these promises. It did, however, manage to fraudulently amass more than $2.5 million by means of them.

          Universal is a payment processor. Its involvement began when it approved TYS as one of its merchant customers. Like many merchants, TYS used a payment processor to charge customers' credit cards and deposit the funds in its bank account. Hal Smith, an independent sales agent who had worked with Universal for roughly a decade, was also involved in the TYS scheme. Smith referred TYS to Universal and procured a merchant account on TYS's behalf. Because Smith's referrals to Universal over the prior ten years had been so profitable, the merchant applications Smith brought to Universal were personally reviewed by Universal's then-president, Derek DePuydt.

         On Smith's referral, DePuydt approved TYS's first merchant account with Universal, despite several glaring red flags indicating TYS might be a fraud risk. In particular, both Plancher and Toska, proprietors of TYS, had serious credit delinquencies. After the first account was established, TYS began to experience an unusually high number of chargebacks, or instances in which a credit card provider demands a refund of a disputed transaction on behalf of its customer. The chargeback levels were so significant that MasterCard took notice of TYS as a potential fraud risk. But, despite mounting evidence of fraud, DePuydt approved a second TYS merchant account.

         It did not take long for the FTC to expose the TYS schemers. In October 2012, the FTC filed this suit against Plancher and Toska and their related corporate entities, alleging violations of the Federal Trade Commission Act (the FTC Act), 15 U.S.C. § 41 et seq., the Telemarketing and Consumer Fraud and Abuse Prevention Act, 15 U.S.C. § 6101 et seq., and the TSR. After discovery had commenced, the FTC added eight additional defendants, including Smith, DePuydt, and Universal. Only the final count of the amended complaint averred any wrongdoing on the part of DePuydt and Universal. That count, Count Twelve, alleged that Universal and DePuydt provided substantial assistance or support to the members of the TYS scheme, who Universal and DePuydt knew, or consciously avoided knowing, were engaged in violations of the TSR.

         In 2014, the FTC moved for summary judgment against the defendants. After numerous settlements, only Universal, Smith, and HES Merchant Services Company (HES), Smith's wholly-owned personal corporation, remained to oppose the motion. The district court granted summary judgment to the FTC on all counts, including Counts One through Eleven against Smith and HES and Count Twelve against Universal and DePuydt. With respect to Count Twelve, the court found the FTC had established that Universal, through DePuydt, knew or consciously avoided knowing of the fraudulent activities TYS conducted, and that Universal substantially assisted TYS in perpetrating the scheme by providing the merchant accounts.

          The FTC subsequently filed a Motion for Equitable Monetary Relief Judgment against Smith, HES, and Universal seeking disgorgement in the amount of $1, 734, 972; that is, the amount of the unjust gains that accrued to the TYS scheme less chargebacks and refunds already remitted. The district court found the defendants were jointly and severally liable for the entire amount of restitution.

         The defendants appealed to this Court. Smith and HES appealed both the merits of summary judgment and the court's imposition of joint and several liability. Brief of Appellants HES Merchant Services Co. & Hal E. Smith at 3, FTC v. HES Merch. Servs. Co., 652 Fed.Appx. 837 (11th Cir. 2016) (Nos. 15-11500, 15-13380). Universal, on the other hand, challenged joint and several liability only. Opening Brief of Defendant-Appellant Universal Processing Services of Wisconsin, LLC at 1, HES Merch. Servs., 652 Fed.Appx. 837. We affirmed with respect to Smith and HES. HES Merch. Servs., 652 Fed.Appx. at 838. In particular, we agreed with the district court's conclusion that Smith and HES could be held jointly and severally liable because they had operated together with the other TYS defendants as a common enterprise in perpetrating the fraud. Id.

         However, we vacated the district court's award of equitable monetary relief against Universal. Id. We held the district court had not explained why Universal's conduct warranted joint and several liability, since its common enterprise finding did not extend to Universal. Id. We remanded the case and instructed the district court to state whether Universal was a part of the common enterprise or, if not, what other grounds there were for imposing joint and several liability. Id.

         On remand, the district court reasoned that a violation of the TSR constitutes an "unfair or deceptive act or practice" in violation of the FTC Act. As such, the district court was authorized to order restitution and disgorgement under the Act. Furthermore, the court clarified that Universal's liability was premised on substantial assistance rather than on a common enterprise theory. Observing the dearth of cases involving substantial assistance under the TSR, the district court looked to tort and securities law for guidance. Both sources of law suggested that joint and several liability is appropriate where a defendant substantially assists the primary violator. In short, the district court clarified that substantial assistance under the TSR was itself sufficient to justify joint and several liability. The court reaffirmed its order holding Universal jointly and severally liable, and Universal filed the instant appeal.


         "We review a district court's order granting equitable monetary relief for abuse of discretion." FTC v. Wash. Data Res., Inc., 704 F.3d 1323, 1325 (11th Cir. 2013). "An abuse of discretion occurs if the judge fails to apply the proper legal standard or to follow proper procedures in making the determination, or bases an award upon findings of fact that are clearly erroneous." Id. at 1326 ...

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