United States District Court, D. Nevada
ORDER (1) GRANTING FEDERAL TRADE COMMISSION'S
MOTION FOR JUDGMENT AND (2)DENYING AS MOOT THE PARTIES'
MOTIONS TO EXCLUDE EXPERTS (ECF Nos. 297, 312, 315)
P. GORDON UNITED STATES DISTRICT JUDGE.
Federal Trade Commission (FTC) filed this enforcement action
seeking injunctive and other equitable relief based on the
defendants' unfair and deceptive practices when selling
magazine subscriptions, in violation of Section 5(a) of the
Federal Trade Commission Act, 15 U.S.C. § 45(a), and the
FTC's Telemarketing Sales Rule, 16 C.F.R. Part 310. Judge
Philip Pro entered summary judgment in favor of the FTC on
liability and issued a permanent injunction. ECF Nos. 151,
152. He also awarded $191, 219.00 in equitable relief against
some of the defendants. ECF No. 248. The FTC appealed the
monetary award and the Ninth Circuit reversed and remanded
for a recalculation of monetary equitable relief. ECF No.
266. Following Judge Pro's retirement, the case was
assigned to me. ECF No. 273.
parties have briefed their respective positions on the proper
amount of monetary equitable relief. They also move to
exclude each other's experts. I award monetary equitable
relief in favor of the FTC and against defendants Publishers
Business Services, Inc.; Ed Dantuma Enterprises, Inc.; Edward
Dantuma; Brenda Dantuma Schang; Dries Dantuma; Dirk Dantuma;
and Jeffrey Dantuma in the amount of $23, 773, 147.78.
facts are laid out extensively in the summary judgment order.
ECF No. 151. In brief, the defendants operated a magazine
subscription service. The defendants would telephonically
contact individuals at their place of business and tell them
that they would get a “surprise” if they
participated in a survey. The surprise was that the
defendants were selling the consumer magazine subscriptions.
The full details of the transaction were spread out over
three stages: the initial call with the sales representative,
who then transferred the consumer to a shift supervisor, and
a later verification call. The transaction was presented in a
confusing and misleading manner by fast-talking sales
representatives, resulting in a net impression that the
consumer was receiving free magazines while having to pay
only a nominal shipping and handling fee. In fact, the
consumer was agreeing to pay hundreds of dollars in magazine
subscription fees. At summary judgment, these practices were
found as a matter of law to create a net impression likely to
mislead the consumer in a material way.
addition to the deceptive initial sales practices, the
defendants also engaged in misleading and abusive collections
practices when consumers refused to pay. The defendants would
falsely tell consumers their accounts could not be canceled
because the defendants had already paid the publishers for
the full subscription when in fact the defendants had not
done so. They also sent misleading collection letters from
their “legal department” even though they had no
legal department. Finally, the defendants made harassing and
threatening phone calls.
Pro entered summary judgment in favor of the FTC on liability
and issued a permanent injunction. ECF Nos. 151, 152. The
parties then presented evidence regarding monetary equitable
relief during a multi-day evidentiary hearing. ECF Nos.
239-41, 252-53, 255. Judge Pro ruled that the FTC had not
shown that complete disgorgement of profits was necessary to
redress consumer injury. ECF No. 248 at 3. He considered full
reimbursement to complaining customers but concluded it would
be impossible or impracticable to locate and reimburse those
customers. Id. at 3-4. He thus concluded
disgorgement of net revenues the defendants received as a
result of their violations was the proper remedy, and he
adopted the analysis of the defendants' expert, Dr.
Gregory Duncan, to impose monetary equitable relief in the
amount of $191, 219.00. Id. at 4. Finally, Judge Pro
ruled that there was insufficient evidence to hold defendants
Persis Dantuma, Brenda Dantuma Schang, Dirk Dantuma, and
Jeffrey Dantuma individually liable. Id. He
therefore entered judgment in the amount of $191, 219.00
against defendants Publishers Business Services, Inc.; Ed
Dantuma Enterprises, Inc.; Edward Dantuma; and Dries Dantuma.
Id. at 4-5.
appealed the monetary award and the Ninth Circuit reversed
and remanded. ECF No. 266. As to individual liability, the
Ninth Circuit directed that individual liability be imposed
on Dirk, Brenda, and Jeff, as well as Edward and Dries.
Id. at 8. As to the amount of monetary relief, the
Ninth Circuit ruled that Judge Pro “applied an
incorrect legal standard when [he] focused on the
defendants' gain rather than the loss to the
consumers.” Id. at 3. Judge Pro also erred by
relying on the fact that it may be impossible to locate and
reimburse individual customers. Id. at 4.
Ninth Circuit found further error in the reliance on the
defendants' expert, Dr. Duncan, because his report was
based on two flawed assumptions. Id. at 5. First,
Duncan assumed most customers heard all the terms of the
magazine subscriptions so they were not misled. Id.
But the defendants' “fraud . . . was not simply the
failure to disclose all pertinent terms.” Id.
Rather, they violated Section 5 “by the
misrepresentations that launched the process, among other
reasons.” Id. Second, Duncan assumed the
magazine subscriptions were not valueless. Id. But
the Ninth Circuit stated this “assumption is not
relevant even if true” because restitution may be
appropriate where the consumer injury “arises out of
misrepresentations made in the sales process, which lead to a
tainted purchasing decision.” Id. at 5-6
(quotation omitted). Thus, consumers are entitled to a full
refund where, as here, the “fraud is in the selling,
not in the value of the thing sold . . . .”
Id. (quotation omitted).
Ninth Circuit vacated the award and remanded for
recalculation. Id. at 6. In doing so, the Ninth
Circuit stated that the court “should base its
calculation on the injury to the consumers, not on the net
revenues received by defendants.” Id. But
“[t]hat does not mean that the district court must
accept the calculation proposed by the FTC”:
PBS has argued, for example, that a customer who renewed
subscriptions necessarily knew the actual terms of the
transaction at the time of renewal. A similar argument was
made regarding customers who added on to a subscription
order. The district court may consider these and other
arguments in determining the appropriate amount of damages to
remand, the parties attempted to settle, and when that failed
they engaged in another round of expert discovery and
briefing on the issue of monetary equitable relief. In
relation to that briefing, the FTC moves to exclude the
defendants' expert, Dr. Armando Levy. The defendants move
to exclude the FTC's psychological expert, Dr. Alan D.
Castel. The parties also filed competing analyses of how the
monetary equitable relief ought to be calculated.
contends I should enter judgment in the amount of $23, 773,
147.78 based on the presumption that all first-time orders
were made in reliance on the deceptive practices. The FTC
argues it is entitled to the presumption that every
first-time customer relied on the deceptive sales practices
because the summary judgment order established the
defendants' deceptive practices were material and widely
disseminated. The FTC excluded from its calculation payments
by customers who renewed or added on to their subscriptions,
consistent with the Ninth Circuit's remand order.
However, the FTC did not exclude those same customers'
initial subscriptions because it takes the position that all
first-time orders were tainted by the misleading practices,
even for those customers who later renewed or added on.
defendants argue this court is not authorized to award
monetary relief. The defendants also assert the FTC is not
entitled to a presumption of consumer reliance because the
FTC has not shown the defendants' revenues were the
result of widespread deception. Rather, the defendants
contend, they had many satisfied customers. Alternatively,
the defendants argue their expert has provided three