## I N THE UNI TED STATES COURT OF APPEALS FOR THE FI F TH CI RCUI T

No. 12-10520

FEDERAL TRADE COMMISSION, Plaintiff - Appellant
v. FINANCIAL FREEDOM PROCESS I NG, INCORPORATED, a corporation, formerly known as Fin a n c i a l F reedom of America, Incorporated; COREY BUTCHER, I ndividually and as an Officer of the Co r p o r a t i on; BRENT BUTCHER, Individually and as an Officer of the Corporation Defendants - Appellees

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - FEDERAL TRADE COMMISSION, Plaintiff - Appellant
v.
DEBT CO N S U L TANTS OF AMERICA, INCORPORATED; DEBT PROFESSIONALS OF AMERICA, INCORPORATED; ROBERT CREEL, I ndividually and a s an Officer of the C orporations; COREY BUTCHER, Individually and as an Officer of the Corporations; NIKKI C REEL, Individually and as an Officer of the Corporations, also known as Nikki Vrla Defendants - Appellees

A ppeal from the United States District Court f or the Northern District of Texas USDC No. 3:10-CV-2447 (consol. with 3:10-CV-2446). U n i t e d S t a te s C o u r t o f A p p e al s

F i f t h C i rc u i t 

## F I L E D Aug ust 12, 2013 Ly l e W . Cay ce Clerk Case: 12-10520 Document: 00512338201 Page: 1 Date Filed: 08/12/2013

### No. 12-10520

Before STEWART, Chi e f J u d g e , H I G GINBOTHAM and JONES, C i r cuit Judges. PATRICK E. HIGGINBOTHAM, Circuit Judge: * 

### In 2010, the FTC sued three debt-negotiation com p anies — Financial Freedom of A merica, Inc., De b t Consultants of America, Inc., a nd Debt Professionals of America, Inc. (“the Companies”) — as well as five of the individuals w ho owned or controlled them. According to the FTC, t h e d e f endants

v i o l a t e d § 5 of the FTC A ct by deceptively claiming, i n radio ads, on th e i r websites, and in sales calls, that the Companie s could eliminate 30 to 60% of consumers’ credit card debt in as little a s 1 8 t o 3 6 m onths. 1 

### At trial, the defendants argued that t he claims were perfectly a c c u r a t e as interpreted by a reasonable consumer, who would have understood that (1) the advertised debt reduction e xcluded t h e C o m panies’ fees a nd (2) the advertised debt reduction and timing excluded c lients who d ropped out of the programs. To support their interpretation of the claims, the defendants relied h e a v i l y on the Companies’ disclosures in sales calls and enrollment agreements — disclosures made at or shortly b efore the point of purchase. T he district court a greed that § 5 deception should be evaluated on the basis of all information the Companies disclosed to

consumers up to the point of purchase. Based o n this c onclusion, it adopted the defendants’ interpretation of the claims and entered judgment in their favor. The district court’s § 5 analysis is dubious. The Companies deployed a marketing c am p a i gn that utilized a v ariety of media and involved a series of discrete communications with c onsumers. Circuits to a p p l y § 5 in such circumstances h ave concluded t h a t “ the law is violated if the first contact is

* Purs uant to 5 T H C I R

. R. 47. 5, the court has determ ined that this op inion s hould not be p ublis hed and is not p reced ent excep t und er the lim ited circum s tances s et forth in 5 T H C I R

. R. 47. 5. 4.

1 As relevant here, § 5 p rohibits “unf air or d ecep tive acts or p ractices in or a f f e c t ing
com m erce. ” 15 U

. S. C

. § 45( a) ( 1)

. The FTC brought s uit und er § 13( b)

. See 15 U. S. C. § 53( b)

. 

### 2 Case: 12-10520 Document: 00512338201 Page: 2 Date Filed: 08/12/2013

### No. 12-10520

secured by deception, even though the true facts are made known to the buyer b efore he enters i nto the c ontract of purchase.” 2 

### That i s , “each a dvertisemen t must stand on its own m e r its; even if other advertisements contain accurate, non-deceptive claims, a violation may occur w ith r e spect to the deceptive ads.” 3 

### Hence, there is an argument with considerable purchase that the d i strict court erred b y con s i d ering n ot o nly the content of individual radio ads and websites (the Companies’ “first contact” with consumers), b u t a l s o critical disclosures made only when consumers arrived at the bargaining table. 4 

### T h e F T C, however, did not c learly challenge the d i strict court’s § 5 analysis on this ground in its briefs or d uring o ral argument

— despite pointed
qu e s tioning. Rather, it chose to challenge the d istrict court’s factual determination that reasonable consumers at the point of purchase would have interpreted the Companies’ debt-reduction and timing c l aims in a non-deceptive

manner. The FTC’s a ttempt to c haracterize this assessment of c o nsumer perceptions as a legal conclusion is unavailing; we review s uch findings only for

c l e ar error. 5 

### A nd while t he Companies’ radio ads and websites may be

2 Exp osi ti on Press, Inc. v
. FTC , 295 F. 2d 869, 873 ( 2d Cir. 1961) ( quoting Ca rter Prods. , Inc. v
. FTC , 186 F. 2d 821, 824 (7th C i r
. 1951) ) ; see al so Resort Ca r Renta l Sys. , Inc. v
. FTC , 518 F. 2d 962, 964 ( 9th Cir. 1975) ( “[ Section 5] is violated if it ind uces the f irs t contact through d ecep tion, even if the buyer later becom es f ully inf orm ed bef

ore entering the contract. ”)

.

3 Rem ov a tron Intern. C orp
. v. FTC , 884 F. 2d 1489, 1496–97 ( 1s t C ir. 1989) ; see a l so FTC
v
. M edi ca l Bi l l ers N

etw ork, Inc. , 543 F. Sup p
. 2d 283, 304 (S. D .N

. Y

. 2008) ( “[ E] ach rep res entation mus t s tand on its ow n m erit, even if other rep res entations contain accurate,
non- decep tive inf

orm ation. ”) ; F

TC v
. G i l l , 71 F. Sup p
. 2d 1030, 1044 ( C

. D

. Cal. 1999) ( s am e)

.

4 H ad the FTC p ers uad ed us that the d is trict court ap p lied an incorrect legal s tand ard , w e w ould have been obliged to review the evid ence de nov o
. See, e. g. , Fuji Photo Fi l m Co. , Inc.
v
. Shi noha ra Shoji Ka bushi ki Ka i sha , 754 F. 2d 591 ( 5th Cir. 1985)

.

5 See, e. g
. , Benef

i ci a l Corp

. v
. FTC , 542 F. 2d 611, 617 ( 3 d C i r
. 1 9 7 6) ( “Whether p articular ad vertis ing has a tend ency to deceive or m is lead is obvious l y a n i m p r e s s ionis tic d eterm ination m ore clos ely ak in to a f ind ing of f

act than to a conclus ion of law

. ”) ; G i a nt Food, Inc. v
. FTC

 ̧ 322 F. 2d 977, 982 n. 12 ( D .C. C ir. 1963) ( “The meaning of ad vertis em ents or other rep res entations to the p ublic, and their tend ency or cap acity to m is lead or dec e ive, are ques tions of

f act

. . . . ”)

. 

### 3 Case: 12-10520 Document: 00512338201 Page: 3 Date Filed: 08/12/2013

### No. 12-10520

misleading 6 

### — indeed, it is diff i c u l t to conclude that the websites are not deceptive 7 

### — we are satisfied that su b s t a n tial evidence supports the district court’s finding that reasonable consumers were no longer d eceived at t he point of purchase. The judgment of the district court is AFFIRMED.

6 For exam p le, even accep ting that a reas onable cons um er exp os ed to the Com p anies ’
r ad io ad s w ould have und ers tood that the ad vertis ed d ebt red uction and tim in g e x c l u d e d d rop outs , the a d s m ay have nonetheles s been d ecep tive becaus e they f ailed to d is clos e the l i kel i hoo d o f d r op ping out ( and af f irm atively f

os tered the m is im pres s ion that p articip ation
w ould be painles s )

. See FTC v
. Stef a nchi k , 559 F. 3d 924, 928 ( 9 t h C i r
. 2 0 0 9 ) ( noting that a m aterial om is s ion m ay violate § 5)

. Though the d is trict court recognized this p os sibility d uring clos ing argum ents , its concerns w ere ap p arently as s ua ge d b y t h e fact that the C om p anies d is clos ed the m any of the ris k s of p articip ation in their s ales calls and enrollm ent agreem ents

.

7 Whereas the rad io ad s m erely f ailed to d is clos e the Com p anies ’ high d rop out rate, see sup ra note 6, tw o of the Com p anies ’ w ebs ites af f irm atively m is rep res ented it, claim ing that “the m ajority of our cl i ents com p lete the p rogram s in 18–36 m onths

. ” ( em phas is ad d ed

. ) This language clearly and unam biguous ly conveys that a m ajority of cons um ers w ho enrol l in the p rogram s ( i

. e. , “clients ”) s ucces s f ully com p lete the p rogram s w ithin 18 to 36 months ; how ever, the evid ence es tablis hes that at m os t 24% of enrolled clients com p eted the p rogram s
.



### 4 Case: 12-10520 Document: 00512338201 Page: 4 Date Filed: 08/12/2013

### EDITH H. JONES, Circuit Judge, concurring:

I concur in my colleagues’ rationale that t he district c ourt’s findings of fact

are not clearly erroneous but I am not s o sure the district court misapplied the law, had FTC properly raised that issue. I concur in the judgment. Case: 12-10520 Document: 00512338201 Page: 5 Date Filed: 08/12/2013