FTC v. Cantkier

Citation
Federal Trade Commission v. Cantkier, 2011 WL 742647 (D.D.C. 2011) (full-text).

Factual Background
According to the FTC’s Second Amended Complaint, the defendants ran deceptive online advertisements featuring the names, phone numbers, and website addresses of federal homeowner relief and financial stability programs. The advertisements were allegedly targeted at users of search engines entering keywords related to these federal assistance programs to divert traffic from approved government and affiliate websites to the defendants' "lead collection websites." Defendants' sites allegedly represented that they were sponsored by federal homeowner relief programs, but were actually collecting potential customer information for private loan modification services.

The FTC, inter alia, sought a preliminary injunction against the Defendants, which was granted after no defendants appeared at the hearing. Defendant Scot Lady did bring a motion to strike and to dismiss Plaintiff’s complaint for failure to state a claim, which was denied. Plaintiff’s Second Amended Complaint alleged three causes of action against Defendant Lady: (1) that he falsely represented that he operated federal homeowner relief or financial stability websites and had an affiliation with the United States government; (2) that he falsely represented that he would "obtain for consumers mortgage loan modifications, in all or virtually all instances, that will make their mortgage payments substantially more affordable"; (3) and that he falsely represented that "he has helped over 97% of his clients obtain a mortgage loan modification." Plaintiff’s Second Amended Complaint sought not only an injunction, but equitable monetary remedies, such as rescission or reformation of contracts, restitution, and disgorgement of ill-gotten monies.

District Court Proceedings
To survive a motion to dismiss, a plaintiff is only required to plead enough facts to state a claim to relief that is plausible on its face ; however, a heightened standard exists for fraud claims. The defendant argued that the FTC has failed to allege “substantial injury” to consumers that was not "reasonably avoidable" by consumers themselves, which the defendant asserted is a required element of any claim for deceptive acts or practices under Section 5 of the FTC Act.

Section 5(a) requires the FTC to show: (1) a representation, omission, or practice that (2) is likely to mislead consumers acting reasonably under the circumstances, and that (3) the representation, omission, or practice is material. Rather than looking to the relevant portion of the Act above, the defendant looked to other sections, namely Section 5(n), for support of his additional requirements of “substantial injury” and not “reasonably avoidable.”

In addressing this argument, the court noted that Section 5(n) only applies to “unfairness” cases and that Plaintiff’s allegations allege deceptive acts or practices, which only require a showing that the practice in question is likely to mislead consumers acting reasonably under the circumstances.

The court similarly dismissed defendant’s other arguments that the FTC failed to plead with particularity under Rule 9(b), and that the Commission had failed to state a claim for relief. Plaintiff’s Second Amended Complaint alleged specific examples of advertisements and websites maintained by the defendant that were allegedly deceptive and gave specific examples of statements that were meant to mislead consumers.

The defendant made a rather interesting claim that his websites were not misleading because they were labeled as advertisements such that consumers would not be deceived that they were sponsored by the federal government. This argument obviously ignored the numerous sponsored ads actually maintained by the federal government and was easily rejected by the court.

In addition to dismissing the defendant’s motion, the court did note in Footnote 11, that bidding on the search engine keywords alone would have been insufficient basis to establish liability under Section 5; the deceptive activities were related to the actual content of the sites connected to those keywords.