Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_12-cv-02246/USCOURTS-azd-2_12-cv-02246-3/pdf.json

Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 15:0045 Federal Trade Commission Act

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WO 

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

Federal Trade Commission, 

Plaintiff, 

vs.

ELH Consulting, LLC, et al. , 

Defendants. 

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No. CV 12-02246-PHX-FJM

ORDER

The court has before it defendants’ motion for judgment on the pleadings (doc. 94),

plaintiff’s response (doc. 102), and defendants’ reply (doc. 106). 

The FTC filed its complaint on October 22, 2012, asserting (1) violations of Section

5(a) ofthe Federal TradeCommission Act(“FTC Act”), 15 U.S.C. § 45(a), and (2) violations

of the Telemarketing SalesRule (“TSR”), 15 U.S.C. §§ 6101-6108. The same day, this court

granted the FTC’s motion for preliminary injunction and enjoined defendants from violating

the FTC Act and the TSR.

Defendants move for judgment on the pleadings and argue that the complaint should

be dismissed with prejudice because it “sounds in fraud” and does not meet the heightened

pleading requirements of Federal Rule of Civil Procedure 9(b) (“Rule 9(b)”). The FTC

contends that even though Rule 9(b) should not apply to deceptive claims under the FTC Act,

the complaint is pled with sufficient particularity to satisfy the Rule 9(b) requirements.

Case 2:12-cv-02246-FJM Document 118 Filed 09/04/13 Page 1 of 3
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The first issue is whether the FTC’s claim that defendants violated the FTC Act is

subject to the heightened pleading standard of Rule 9(b). The Ninth Circuit has not yet

decided this specific issue. Defendants cite F.T.C. v. Lights of America, 760 F. Supp.2d 848

(C.D. Cal. 2010) for the proposition that Rule 9(b) applies to claims for violations of the FTC

Act because those claims “sound in fraud.” While decisions of other district courts are not

binding precedent on this court, we find Lights of America persuasive. In that case, the court

noted that Rule 9(b) applies when “(1) a complaint specifically alleges fraud as an essential

element of a claim, (2) when the claim ‘sounds in fraud’ by alleging that the defendant

engaged in fraudulent conduct, even though the claim itself does not contain fraud as an

essential element, and (3) to any allegations of fraudulent conduct, even when none of the

claims in the complaint ‘sound in fraud.’” Lights of America, 760 F. Supp.2d at 852 (citing

Vess v. Ciba–Geigy Corp. USA, 317 F.3d 1097, 1102-06 (9th Cir. 2003)). The court

reasoned that “the FTC's claim sound[ed] in fraud because it alleges a unified course of

fraudulent conduct and relies entirely on that course of conduct as the basis of its claim.” Id.

at 853. Here, the FTC’s complaint sounds in fraud in that it alleges that defendants engaged

in deceptive acts and practices and “operate a tangled network of telemarketing companies

and telemarketing service providers” who make “representations” that are “false.”

Complaint, ¶¶ 18, 39, 40, and 41. Because the FTC’s allegations sound in fraud, the court

appliesthe heightened pleading standard of Rule 9(b) in evaluating the motion for judgment

on the pleadings.

Under Rule 9(b), "[i]n alleging fraud or mistake, a party must state with particularity

the circumstances constituting fraud or mistake." To satisfy Rule 9(b) the plaintiff must

include “the who, what, when, where, and how” of the fraud. Vess v. Ciba-Geigy Corp.,

USA, 317 F.3d 1097, 1106 (9th Cir. 2003) (citation omitted). “A pleading issufficient under

rule 9(b) if it identifies the circumstances constituting fraud so that a defendant can prepare

an adequate answerfromthe allegations.” Moore v. Kayport Package Express,Inc., 885 F.2d

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531, 540 (9th Cir. 1989). “[T]here is no absolute requirement that, where several defendants

are sued in connection with an alleged fraudulent scheme, the complaint must identify false

statements made by each and every defendant.” Swartz v. KPMG LLP, 476 F.3d 756, 764

(9th Cir. 2007). Courts may relax Rule 9(b)’s particularity requirements in circumstances

where plaintiff will not have personal knowledge of all of the underlying facts. Moore, 885

F.2d at 540. In those cases, plaintiff “should include the misrepresentations themselves with

particularity and, where possible, the roles of the individual defendants in the

misrepresentations.” Id.

Here, the FTC has met the pleading standard of Rule 9(b). The twenty-two page

complaint (doc. 3) identifies several defendant entities and individuals (id. at ¶¶ 6-16),

categorizes those defendants based on their function in the alleged scheme (id. at ¶¶ 18-23,

36, 83), and includes specific representations allegedly made by defendants (id. at ¶¶ 24-26).

The complaint thoroughly describes the nature of the scheme, and how it was carried out.

See Doc. 3 at ¶¶ 18-36. Specifically, the complaint alleges that defendants “operate a tangled

network of telemarketing companies and telemarketing service providersthat . . . deceptively

telemarket credit card interest rate reduction services and provide substantial assistance to

third parties who deceptively telemarket such services. Id. The complaint also identifies the

when and where the alleged deceptive conduct took place. See Doc. 3 at ¶¶ 19-21, 23.

Overall, the detailed allegations in the complaint were sufficient to allow defendants to

prepare an adequate answer. See Doc. 42. Because the FTC’s complaint states “the who,

what, when, where, and how” of the fraud with particularity, it satisfies the Rule 9(b)

pleading standard. 

Therefore, IT IS ORDERED DENYING the motion for judgment on the pleadings

(doc. 94).

DATED this 4th day of September, 2013.

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