to finding of individual liability under the FTC Act and the TSR Rule. In addition to hiring
employees for Biosource, Williams received copics of, reviewed, approved and drafted
telemarketing scripts at the company. (Pl.’s LR 56.1(a)(3) [{j 64, 70-73). The telemarketing
scripts used by the defendants are the devices through which the illegal misrepresentations and
deceptive practices were put into action. By receiving copies of, reviewing, approving and
drafting these telemarketing scripts, Williams also was participating directly in the prohibited
corporate practices in violation of the FTC Act. These activities also are evidence that Williams
had knowledge of the deceptive practices. Longo had the authority to and did supervise and
discipline employees for Biosource, and, like Williams, also received copies of, reviewed,
approved and drafted telemarketing scripts at the company, (Jd, at §] 79-81, 85-88). Again,
these facts are sufficient {o support the finding that Longo participated directly in the prohibited
corporate practices in violation of the FTC Act and the TSR Rule, and that he had knowledge of
these practices.

In addition, the FTC has established that there is no genuine issue as to a material fact
with regard to Levoy’s individual liability under the FTC Act and TSR Rule. The corporate
defendants are clearly liable, as discussed above, and Levoy was director, officer and owner of
Biosource. Levoy admits that his people sold the identity theft package and financial benefits
package and obtained credit card numbers ftom individuals. (Defs.’ Ex. 2, at 6, 8.) Levoy
reccived complaint letters, knew that not all complainants received their packages, reviewed the
telemarketing scripts when someone complained (id, at 9), and as a result of those complaints, he
purports to have refunded roughly 75% of what Biosource sold (id. at 1-2, 6). Further, the facts

before the Court establish that Levoy, at most, knew, and at the very least, should have known

13



Defendant Steven Winter is or was a director, officer and owner of CA Delaware and CA
Ontario. (/d. {}| 29-34.) Steven Winter hired and supervised employees, reviewed consumer
complaints, responded to letters from government agencies and monitored telephone calls for
both CA Delaware and CA Ontario. (/d. J] 35-38.) Steven Winter also monitored telephone
calls between telemarketers and consumers, as well as received, reviewed, drafled and approved
telemarketing scripts at CA Delaware and CA Ontario, (/d. §{ 39-43.) Steven Winter
participated directly in the acts and practices of the corporate defendants, including the acts and
practices set forth in the FTC’s complaint. (Jd. { 44.)

Defendant Gordon Levoy (“Levoy”) is and was a director, officer and owner of
Biosource. (/d. ff 46-50.) He shared in the corporation’s profits, and hired employces for the
corporation. (/d.) Levoy reviewed consumer complaints received by Biosource. Cd. 4 52.)
During all times relevant to the instant action, Levoy had authority to control the acts and
practices of Biosource. (Jd. 4 60.)

Defendant Jason C. Williams (“Williams”) hired employees for Biosource. (id. fj 64,
70-73.) He received, reviewed, approved, and drafted and copies of telemarketing scripts at
Biosource. (/d.)

Defendant Danny Longo (“Longo”) had the authority to, and did in fact, supervise
employees for Biosource and also had the authority to discipline employees for Biosource. (Jd.

{1 79-81.) Longo also received copies of, reviewed, approved and drafted telemarketing scripts

at Biosource, (/d. ff] 85-88.)



This Court finds that, as to the defendants Levoy, Williams and Longo, those factual
statements contained in the FTC’s LR 56.1 statement of material facts that are supported solely
by citation to its Requests for Admission (P1.’s LR 56.1(a)(3) $7 5; 6, 8, 9, 11-16, 21, 35-43, 51,
53-58, 67-69, 82-84) cannot simply be deemed admitted as to these defendants, as doing so
would result in the finding of summary judgment as to these defendants based solely on their
silence in violation of the rulings in LaSalle, National Acceptance, and Baxter, Those of the
FTC’s statements that are supported by citations to the FTC’s Requests for Admission in
addition to other exhibits or evidence will be analyzed in light of the additional evidence and the
permissible inferences that the above-cited cases allow due to Levoy, Williams, and Longo’s
silence in response to the Requests for Admission and to the summary judgment motion. As a
result of this analysis, the Court deems admitted facts in paragraphs 46-50, 52, 59, and 60 as to
defendant Levoy, facts in paragraphs 64 and 70-73 as to defendant Williams, and facts in

paragraphs 79-81 and 85-88 as to defendant Longo.

IL. FTC Act and Telemarketing Sales Rule

Section 5 of the FTC Act prohibits “unfair methods of competition in or affecting
commerce, and unfair or deceptive acts or practices in or affecting commerce.” 15 U.S.C. §
45(a)(1). “[T]o establish an act or practice is deceptive, the FTC must establish thal the
representations, omissions, or practices likely would mislead consumers, acting reasonably, to
their detriment.” FTC v. World Travel Vacation Brokers, Inc., 861 F.2d 1020, 1029 (7th Cir,
1988). Misrepresentations of material facts made for the purpose of inducing customers to
purchase goods or services also constitutes unfair or deceptive acts or practices that are
forbidden by Section 5(a). Jd. at 1029 (quoting FTC v. Kitco of Nevada, Inc., 612 F. Supp 1282,

9



response to the moving party’s statement that shall contain a response to each numbered
paragraph in the moving party’s statement, including, in the case of disagreement, specific
references” to the record or other supporting materials. All those facts set forth in the moving
party’s statement “will be deemed to be admitted unless controverted by the statement of the
opposing party.” LR 56.1(b)(3)(B). It should be noted that district courts are given broad
discretion to enforce this local rule, Feliberty v. Kemper Corp., 98 F.3d 274, 278 (7th Cir. 1996),
and that the Seventh Circuit has “repeatedly upheld the strict enforcement of these rules.”
Waldridge v. Am. Hoechst Corp., 24 F.3d 918, 922 (7th Cir. 1994) (listing cases).

On January 30, 2003, the FTC filed with its summary judgment motion a Statement of
Material Facts as to which There Is No Genuine Issue. Defendants CA Delaware, CA Ontano,
and Steven Winter failed to respond to the FTC’s statement of facts, therefore, pursuant to LR
56.1(b)(3)(B), all facts put forth by the FTC in its statement are deemed admitted as to these
defendants.

Defendants Biosource, Levoy, Williams and Longo (collectively, the “Biosource
defendants”) have submitted a joint response to the FTC’s motion for summary judgment and
statement of material facts pursuant to LR 56.1. Although defendant Biosource did respond to
the FTC’s motion and statement of facts, its failure to respond to the FTC’s Requests for
Admission, pursuant to Fed, R. Civ. P. 36(a), results in the Court’s deeming all of those requests
as admitted. See Fed. R. Civ. P. 36(a). Accordingly, the FTC’s citation to these requests in their
LR 56.1 statement of facts is proper and leads to the determination that all of those facts
supported by a citation to these requests are deemed admitted as to defendant Biosource. See
United States v. Kasuboski, 834 F.2d 1345, 1350 (7th Cir. 1987) (“Admissions made under Rule
36, even default admissions, can serve as the factual predicate for summary judgment.”).

6



DISCUSSION

Pursuant to Federal Rule of Civil Procedure 56(e), summary judgment is proper “if the
pleadings, depositions, answers to interrogatories, and admissions on file, together with the
affidavits, if any, show that there is no genuine issue of material fact and that the moving party is
entitled to judgment as a matter of law.” In determining whether a genuine issue of material fact
exists, the Court does not weigh the evidence or detcrmine the truth of the matters asserted.
Anderson v, Liberty Lobby, Inc., 477 U.S. 242, 249 (1986). A Court “must view the facts, and
all reasonable inferences drawn thereftom, in a light most favorable to the nonmoving party.”
Baron v. City of Highland Park, 195 F.3d 333, 337 (7th Cir. 1999), The nonmoving party may
not rest on her pleadings however and instead must demonstrate through specific factual
allegations that there is a genuine issue of material fact, Celotex Corp. v. Catrett, 477 U.S. 317,
324 (1986). If a reasonable jury could not find for the party opposing the motion, it must be

granted. Seshadri v. Kasraian, 130 F.3d 798, 804 (7th Cir. 1997).

L Local Rule 56.1

Summary judgment pleadings in the Northem District must conform to LR 56.1.
According to LR 56.1(a)(3), the moving party must file with its motion for summary judgment
“a statement of material facts as to which the moving party contends there is no genuine issue
and that entitles the moving party to a judgment as a matter of law.” This statement is to consist
of “short numbered paragraphs, including within each paragraph specific references to the
affidavits, parts of the record, and other supporting materials relied upon to support the facts set
forth in that paragraph.” LR 56.1(a)(3). LR 56.1(b)(3) requires the opposing party to a summary
judgment motion to respond to the moving party’s statement of facts by filing “a concise

5


the Seventh Circuit did note that “the rule that adverse inferences may be drawn from Fifth
Amendment silence in civil proceedings has been widely recognized by the circuit courts of
appeals, including our own,” it went on to say, that, according to the rule set forth in Baxter v.
Palmigiano, 425 U.S. 308, 318 (1976), “allhough inferences based on the assertion of the
privilege are permissible, the entry of judgment based only on the invocation of the privilege and
‘without regard to the other evidence’ exceeds constitutional bounds,” LaSalle, 54 F.3d at 391,
(quoting Baxter v. Palmigiano, 425 U.S. 308, 318 (1976)).

The LaSalle court went on to discuss the case National Acceptance Co. v. Bathalter, 705
F.2d 924, 930 (7th Cir. 1983), where the court ruled that the “failure to answer the allegations of
a civil complaint based on an assertion of the Fifth Amendment privilege could not be construed
as an admission of those allegations even though Fed. R. Civ. P. 8(d) would other wise require
that result.” LaSalle, 54 F.3d at 390-91, Based upon National Acceptance, the Seventh Circuit
reasoned in LaSalle that “deeming an allegation of a complaint to be admitted based on the
invocation of the Fifth Amendment privilege without requiring the complainant to produce
evidence” to support its allegations exceeds the limitation explained above in the Baxter case.
54 F.3d at 391.

Like the allegations in the complaint in National Acceptance, in the instant case, the
Requests for Admission that the FTC seeks to be deemed admitted are not supported by any
evidence. Requests for Admission are simply a tool of discovery, and are not required to have
any evidentiary support. Fed. R. Civ. P. 36. Deeming the FTC’s Requests for Admission as
admitted based upon the defendants’ invocation of the Fifth Amendment, and the inevitable
finding of summary judgment that this would result in would be contrary to the limitations set

forth in Baxter, and the rulings in LaSalle and National Acceptance.

8



Minute Order Form (06/97)

cf United States District Court, Northern District of Iinois
Nume of Assigned Judge Ronald A. Guzman Sitting Judge if Other
or Magistrate Judge ‘than Assigned Judge
CASE NUMBER 02 C 2429 DATE 9/29/2003
CASE FTC vs. Consumer Alliance Inc.,et al
TITLE

[In she following box (a) indicate the party filing the motion, e.g., plainti(Y, defendant, 3rd party plaintiff, and (b) state briefly the nature

‘of the motion being presented.)

(1)

MOTION;

DOCKET ENTRY:

(1) Oo Filed motion of [ use listing in “Motion” box above.]

(2) o Brief in support of motion due

(3) Oo Answer brief to motion duc___. Reply to answer brief due___

(4) oO Ruling/Hearing onset ffor_ at

(3) Q Status hearing[held/continued to] [set for/re-set for] on set for_ at

(6) im Pretrial conference[held/continued to] (set for/re-set for]on__—— set fora.

(7) oO Trial[set for/re-set for]on_— at

(8) o [Beneh/Jury trial] [Hearing] held/continued to at

(9) oO This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]
OFRCP4(m) CiLocal Rule 41.1 OFRCP4i(a)(1) OO FRCP41(a)(2).

qo) =o [Other docket entry] ENTER MEMORANDUM OPINION AND ORDER: Plaintiff's motion for

summary judgment is granted in part and denicd in part [18-1]. All defendants are found liable under FTC Act
and the TSR Rule. The Court enters a permanent injunction against defendants with respect to all aspects of the
permanent injunction order previously submitted by the FTC except with respect to the amount of monctary
judgment and redress, which will be addressed in a hearing to be scheduled forthwith. The FTC shall submit a
permanent injunction order that reflects this Court’s holding within ten days of the entry of this Memorandum

Opinion and Order. The parties shall schedule a hearing on the sole remaining issue.

| | [For further detail sce order attached to the original minute order.)

No notices required, advised in open court.

No notices required.
number of notices

Notices muiled by judge's staff. SEP 3.0 2003

Notified counsel by telephone, date docketed

Docketing to mail notices.

Mail AO 450) form, ping mqeen

uckuting depuly initials

Copy to judge/magistrate judge.

ate mulled notice
courtroom - =

TBK depuly's
initials _

~ Date/time received in
Sentral Clerk's Otfice mailing dep tas



violations of the Telemarketing Sales Rule as though they were violations of Section 5 of the

FTC Act. 15 U.S.C. § 6105(b).

i, Corporate Defendants

Based upon the facts deemed admitted as to the corporate defendants in this case, namely
the facts that the defendants represented that they were calling from legitimate credit card
companies (P1.’s LR 56.1(a)(3) {| 18), and that after obtaining consumers’ credit card numbers
and bank account numbers, they then caused charges to be posted on those accounts without the
consumers’ knowledge or authorization (id. | 24), the FTC has conclusively shown that the
corporate defendants in this case have employed “unfair methods of competition, . .and unfair or
deceptive acts or practices in or affecting commerce” in violation of the FTC Act, 15 U.S.C. §
45(a)(1). The defendants’ representations, omissions, and/or practices, such as those mentioned
above, have misled “consumers, acting reasonably, to their detriment.” FTC v. World Travel
Vacation Brokers, 861 F.2d 1020, 1029 (7th Cir. 1988).

The undisputed facts in the record show that from at least late 1999 through at least late
2001, CA Delaware, CA Ontario and Biosource deceptively telemarketed advance fee credit card
services to consumers throughout the United States and that these corporate defendants expressly
represented to its consumers that they would provide or arrange for the consumers to receive low
interest credit cards when they did not do these things. (P1.’s LR 56.1(a)(3) 44 17, 23.) This
conduct violates the TSR prohibition against ‘requesting or receiving payment of any fee or
consideration in advance of obtaining a loan or other extension of credit when the seller or
telemarketer has guaranteed or represented a high likelihood of success in obtaining or arranging
a loan or other extension of credit for a person,” 16 C.F.R. § 310.4(a)(4) (2002). The corporate

int



1291 (D. Minn. 1985)).

Individuals may be held liable under the FTC Act. FTC v. Amy Travel Serv., Inc., 875
F.2d 564, 573 (7th Cir. 1989). The first requirement for individual liability is that a corporation's
practices arc shown to be misreprcsentations or omissions of a kind usually relied upon by
persons acting reasonably, which results in consumer injury. Jd. at 573. After corporate liability
is established, it must be shown that the individual in question participated directly in the
practices or acts, or had the authority to control them. Jd. This authorily may be shown “by
active involvement in business affairs and the making of corporate policy, including assuming
the duties of a corporate officer.” /d. Finally, the FTC must establish that the defendants had or
should have had knowledge or awareness of the misrepresentations, but that knowledge
requirement may be fulfilled by showing that the individual had ‘actual knowledge of material
misrepresentations, reckless indifference to the truth or falsity of such misrepresentations, or an
awareness of a high probability of fraud along with an intentional avoidance of the truth.’

The Telemarketing Sales Rule, 16 C.F.R. § 310.3(a)(4), “prohibits sellers and
telemarketers from making false or misleading statements to induce persons to acquire goods or
services.” FTC v. Growth Plus Int'l Mktg., Inc., No. 00 C 7886, 2001 WL 128139, at *3 (N.D.
Ill. Jan. 9, 2001). The ‘TSR also “prohibits telemarketers and sellers from, inter alia, requesting
or receiving payment of any fee or consideration in advance of obtaining a loan or other
extension of credit when the seller or telemarketer has guaranteed or represented a high
likelihood of success in obtaining or arranging a loan or other extension of credit for a person.”
16 C.F.R. § 310.4(a)(4); see FTC v. 1263523 Ontario, Inc., 205 F. Supp. 2d 205, 209 (S.D.N.Y.
2002). As defined in the TSR, the individual and corporate defendants in this case arc rightly
considered “sellers” or telemarketers.” 16 C.F.R. §§ 310.2(r), (t), (u). The FTC may enforce

10



As stated above, LR 56.1(a)(3) requires that the moving party in summary judgment
proceedings must provide “specific references to the affidavits, parts of the record, and other
supporting materials relied upon to support the facts set forth in that paragraph.” In its LR 56.1
statement of material facts, the FTC has cited to its Requests for Admissions, and the
defendants’ failure to respond to such requests, as the sole support for statements of facts in
paragraphs 5, 6, 8, 9, 11-16, 21, 35-43, 51, 53-58, 67-69, 82-84. The FTC argues that because
defendants Levoy, Williams and Longo responded to its discovery by invoking the Fifth
Amendment to all of its Requests for Admission and Interrogatories, pursuant to Fed. R. Civ. P.
36(a), the Court should deem admitted all of the factual statements in the FTC’s Requests for
‘Admission as to these defendants. Based upon these admissions, the FTC further argues that the
Court should therefore deem as admitted all those facts set forth in the FTC’s LR 56.1 statement
of material facts supported by citation to its Requests for Admission, This would inevitably lead
the Court to the grant of summary judgment against these defendants as to liability solely based
upon Admissions that are the result of their invocation of their Fifth Amendment privilege. The
issue as to these defendants then is whether their invocation of the Fifth Amendment privilege in
response to the FTC’s discovery can lead to the finding of summary judgment for the FTC.

The Seventh Circuit has stated, “[sJilence is a relevant factor to be considered in light of
the proffered evidence, but the direct inference of guilt from silence is forbidden.” LaSalle Bank
Lake View v. Seguban, 54 F.3d 387, 390 (7th Cir. 1995), In LaSalle Bank Lake View v. Seguban,
where the district court had entered summary judgment in favor of the moving party based solely
on the adverse inferences it drew from the nonmovant’s invocation of the Fifth Amendment
privilege in answering the moving party’s motion and statement of facts as required by LR 12(N)
(now LR 56.1(b)), the Seventh Circuit reversed the district court’s ruling. Jd. at 388, 393. While

7



business in Collingwood, Ontario. (/d. | 10, 11.) Biosource transacts or has transacted business
in the Northern District of Illinois and throughout the United States. (/d. J 12.)

From at least late 1999 through at least late 2001, CA Delaware, CA Ontario and
Biosource (collectively the “corporate defendants”) deceptively telemarketed credit card
protection services and advance fee credit card services to consumers throughout the United
States. (Jd. 4.17.) Although Biosource maintained separate facilities from CA Delaware and CA
Ontario, Biosource telemarketers often claimed to be selling for Consumer Alliance, solicited
consumers on behalf of, and under contract for, Consumer Alliance. (/d. at 971 91-92.) During
telephone solicitations, to induce consumers to purchase credit card protection serviccs, the
corporate defendants represented, either expressly or by implication, that they were calling from,
or were affiliated with, legitimate credit card companies, such as Visa, MasterCard, or the
issuing bank of the consumer's credit card although the defendants were not affiliated with,
calling from or acting on behalf of these entities. (/d. | 18.) During solicitations, the corporate
defendants told consumers that they needed to purchase the defendants’ products as they arc not
protected against unauthorized use of their credit card accounts, that the consumers could be held
liable for all unauthorized charges on their credit cards, and persuaded consumers to divulge
their credit card numbers by stating that they already knew the numbers but needed them for
verification. (/d. |] 19-22.) After the defendants obtained consumers’ credit card numbers and
bank account numbers, they then caused charges to be posted on those accounts without the
consumers’ knowledge or authorization. (/d. {| 24.) In addition, the corporate defendants,
during tclephone solicitations, represented to consumers that they would provide, or arrange for

the consumers to receive, low interest credit cards, in retum for advance payment, while the

defendants did in fact not do so, (/d. 4 23.)



that his people were engaging in dishonest or fraudulent acts. To hold otherwise would require
the Court to make unreasonable inferences in Levoy’s favor, which this Court is not required to

do under Rule 56.

IV. FTC’ s Requested Relief

The Court, having found that each defendant is liable under the FTC Act and the TSR
Rule, next considers the FTC’s requested relief. In its motion, the FTC requests an entry of a
permanent injunction against each defendant, together with the monetary equivalent of rescission
in the form of restitution to consumers and disgorgement of unjust enrichment in the amount of
$19,061,510.00.

Section 13(b) of the FTC Act provides “that in proper cases the Commission may seek
and after proper proof, the court may issue, a permanent injunction.” 15 U.S.C. § 53(b); see
United States v. JS & A Group, Inc., 716 F.2d 451, 457 (7th Cir. 1983), The Seventh Circuit has
stated that a district court may order rescission in a Section 13(b) procceding. FTC v, Elders
Grain, Inc., 868 F.2d 901, 907 (7th Cir. 1989). The Seventh Circuit has also stated that the act’s
granting of authority to provide permanent injunctive relief gives “the district court authority to
grant any ancillary relief necessary to accomplish complete justice.” FTC v. World Travel
Vacation Brokers, Inc., 861 F.2d 1020, 1026 (7th Cir. 1988),

Due to the egregious and fraudulent conduct of the defendants in this case, the Court
holds that a permanent injunction as to each defendant is appropriate to prevent further fraud and
to effectuate the purpose of the FTC Act. There is no evidence in the record that defendants ever

provided anything of value to a large class of persons upon which they preyed, and yet,

14


there is a genuine issue as to a material fact regarding the proper amount, Accordingly, the
Court hereby enters a permanent injunction against defendants with respect to all aspects of the
permanent injunction order submitted by the FTC except with respect to the amount of monetary

judgment and redress, which will be addressed at a hearing scheduled forthwith.

CONCLUSION

For the reasons set forth above, the FTC’s motion for summary judgment is granted in
part and denicd in part [doc. no. 18-1], All defendants are found liable under the FTC Act and
the TSR Rule. The Court enters a permanent injunction against defendants with respect to all
aspects of the permanent injunction order previously submitted by the FTC exccpt with respect
to the amount of monetary judgment and redress, which will be addressed in a hearing to be
scheduled forthwith. The FTC shall submit a permanent injunction order that reflects this
Court’s holding within ten days of the entry of this Memorandum Opinion and Order. The

partics shall schcdule a hearing on the sole remaining issue.

SO ORDERED: ENTERED: Vf BY 08

HON. RONALD A.
United States Judge



Williams, and Danny Longo, individually and as officers of the corporate defendants, pursuant
to Sections 13(b) and 19 of the Federal Trade Commission Act (“FTC Act”), 15 U.S.C. § 53(b)
and 57(b), and the Telemarketing and Consumer Fraud and Abuse Prevention Act
(“Telemarketing Act”), 15 U.S.C. § 6101 e¢ seg. In plaintiff's six-count complaint, counts I, 1
and TII allege that defendants violated § 5 of the FTC Act and counts IV, V and VI allege
violations of the FTC’s Telemarketing Sales Rule (“TSR”), 16 C.F.R. § 310.4(a)(4). Before the
Court is plaintiffs motion for summary judgment pursuant to Federal Rule of Civil Procedure
(“Rule”) 56. For the reasons set forth in this memorandum opinion and order, the Court grants

in part and denies in part plaintiff's motion.

FACTS'

Corporate defendants in this case, Consumer Alliance, Inc. (“CA Delaware”), a Delaware
corporation, and Consumer Alliance Inc., a/k/a 1421914 Ontario Inc. (“CA Ontario”), a
Canadian corporation, had their offices and principal places of business at the same address in
Toronto, Ontario, Canada, (Pl.’s LR 56.1(a)(3) ff 4, 5, 7, 8.) CA Delaware and CA Ontario
(collectively “Consumer Alliance”) both transact or have transacted business in the Northern
District of Illinois and throughout the United States. (/d. 4] 6, 9.) Defendant Biosource

Financial, Inc, (“Biosource”), a Canadian corporation, had its office and principal place of

'The following facts are either undisputed or are deemed admitted because the
defendants’ response did not refute plaintiff's statement of facts and/or was unsupported by a
proper citation to the record as required by LR 56.1(b)(3)(A), which this Court strictly enforces.
A discussion of the facts that are deemed admitted as to defendants Levoy, Williams, and Longo
is provided in the Court’s analysis. All facts stated by the FTC are deemed admitted as to
defendants CA Delaware, CA Ontario, and Winter because these defendants failed to respond in
any way to the FTC’s motion.



IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

FEDERAL TRADE COMMISSION,

Plaintiff,

02 € 2429

v.

Judge Ronald A. Guzman

CONSUMER ALLIANCE, INC.,
a Delaware corporation,

CONSUMER ALLTANCE, INC, a/k/a 1421914
Ontario Inc., a Canadian corporation,

BIOSOURCE FINANCIAL, INC.,
a Canadian corporation,

DOCKETED

STEVEN WINTER, individually and as
SEP 39 2003

an officer and director of the corporate
defendants,

GORDON LEVOY, individually and as
an officer and director of the corporate
defendants,

JASON C. WILLIAMS, individually and as
an officer of the corporate defendants,

DANNY LONGO, individually and as
an officer of the corporate defendants,

wee SS SS Se Se SS SS ee ee eee

Defendants.

MEMORANDUM OPINION AND ORDER
Plaintiff Federal Trade Commission (“FTC”) has sued defendants Consumer Alliance,
Inc., a Delaware corporation, Consumer Alliance, Inc., a/k/a 1421914 Ontario Inc., a Canadian
corporation, Biosource Financial, Inc,, a Canadian corporation, Steven Winter and Gordon

Levoy, individually and as officers and directors of the corporate defendants, and Jason C.

oe



defendants, in the activity described above, clearly represented to consumers that there was a
high likelihood of success that they would obtain credit cards as a result of the products the

defendants were marketing.

ii. Defendants Winter, Levoy, Williams and Longo

As stated above, an individual may be held liable under the FTC Act if three
requirements are met, Amy Travel Serv., Inc,, 875 F.2d at $73 (7th Cir. 1989). First, the
corporation that employed the individual must be liable under the FTC Act, Jd. Second, the
individual participated directly in the acts or practices that lead to corporate liability. Jd. Third,
the individual knew or should have known that the conduct was dishonest or fraudulent. /d. at
573-74,

Defendant Winter’s activities and involvement with the corporate defendants lead to the
finding of individual liability in this case. As stated above, the corporate defendants in this case
are liable for violations of the FTC Act. Because Winter is or was a director, officer and owner
of CA Delaware and CA Ontario (P1.’s LR 56.1(a)(3) 94] 29-34), he is deemed to have directly
participated in the acts or practices that lead to liability, See Amy Travel Serv., Inc., 875 F.2d at
573. Winter had knowledge of the corporate acts and practices that result in liability as he
reviewed consumer complaints and responded to letters from government agencics, monitored
telephone calls for both CA Delaware and CA Ontario, and received, reviewed, drafted and
approved telemarketing scripts at CA Delaware and CA Ontario. (PI.’s LR 56.1(a)(3) fff 35-43.)
These facts meet the requirements for individual liability under the FTC Act and the TSR Rule
and accordingly, the Court finds defendant Winter liable.

The activities of defendants Williams and Longo, according to the facts of this case, lead

12


defendants billed charges to these persons without their authorization. If there ever were a case
that warranted the range of permanent injunctive relief proposed by the FTC, this is it.

However, with regard to the amount of monetary relief that is appropriate, there exists a
dispute between the parties. In support of its statement of material facts, the FTC presents
evidence that CA Delaware reported net sales of at least $4,011,510.00. (PI.’s LR 56.1(a)(3)
93.) None of the defendants dispute this. (Defs.’ LR 56.1(b)(3)(A) J 93.) The FTC presents no
statement of fact as to CA Ontario’s sales. As for Biosource, the FTC presents evidence that,
based on the number of customer names Biosource provided during the period of March 30,
2001 through late May 2001, Biosource sold at least 8,600 packages at $400.00 each under the
Biosource name, (P1.’s LR 56.1(a)(3) § 93.) The FTC further states that defendants operated
under the Biosource name during at least the period of October 2000 through July 2001. (id. {|
94, The FTC asks the Court to extrapolate from these figures and dates that the total loss to
consumers as a result of defendants’ illegal conduct is $19,061,510, (Pl.’s Mem. Supp. Mot.
Summ. J. at 12.) However, Biosource disputes this and relies on the affidavit of Aurelio
Cavalieri, Biosource’s Controller, which states that Biosource sold packages to 4,454 customers
during 2001 and 2002 and Biosource provided refunds to 837 of those customers. (Defs.’ LR
56.1(b)(3)(A) § 94; Defs.’ Ex. 4, Cavalieri Aff. 7 5.)

Thus, while it is clear to the Court that consumer redress is warranted, it is also clear that

*Biosource attempts to aver that Biosource “is a completely independent corporation from
Consumer Alliance,” (Defs.’ LR 56.1(b)(3)(A) 99 91, 94.) However, because it is undisputed
that Biosource telemarketers often claimed to be selling for Consumer Alliance and that
Biosource sold packages for and received commissions ftom Consumer Alliance, Biosource
cannot now attempt to separate itself from Consumer Alliance based merely on the fact that the
(wo corporations maintained separate facilities and that Winter and Williams were more familiar
with Consumer Alliance than Levoy. (See Defs.’ Ex. 2, at 2.)

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